Here's Why Global New Material International Holdings (HKG:6616) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Global New Material International Holdings Limited (HKG:6616) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Global New Material International Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Global New Material International Holdings had debt of CN¥2.99b, up from CN¥1.38b in one year. However, it does have CN¥3.70b in cash offsetting this, leading to net cash of CN¥707.9m.

How Healthy Is Global New Material International Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Global New Material International Holdings had liabilities of CN¥1.24b due within 12 months and liabilities of CN¥2.03b due beyond that. Offsetting this, it had CN¥3.70b in cash and CN¥615.4m in receivables that were due within 12 months. So it can boast CN¥1.04b more liquid assets than total liabilities.

This short term liquidity is a sign that Global New Material International Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Global New Material International Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Global New Material International Holdings

Importantly, Global New Material International Holdings grew its EBIT by 56% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Global New Material International Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Global New Material International Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Global New Material International Holdings saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Global New Material International Holdings has CN¥707.9m in net cash and a decent-looking balance sheet. And we liked the look of last year's 56% year-on-year EBIT growth. So we don't have any problem with Global New Material International Holdings's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Global New Material International Holdings that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.