Feiyu Technology International (HKG:1022) Seems To Use Debt Rather Sparingly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Feiyu Technology International Company Ltd. (HKG:1022) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Feiyu Technology International's Debt?

You can click the graphic below for the historical numbers, but it shows that Feiyu Technology International had CN¥86.5m of debt in June 2025, down from CN¥92.5m, one year before. But it also has CN¥102.2m in cash to offset that, meaning it has CN¥15.7m net cash.

A Look At Feiyu Technology International's Liabilities

According to the last reported balance sheet, Feiyu Technology International had liabilities of CN¥91.4m due within 12 months, and liabilities of CN¥88.6m due beyond 12 months. On the other hand, it had cash of CN¥102.2m and CN¥74.2m worth of receivables due within a year. So it has liabilities totalling CN¥3.64m more than its cash and near-term receivables, combined.

This state of affairs indicates that Feiyu Technology International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥1.06b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Feiyu Technology International also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Feiyu Technology International

Also good is that Feiyu Technology International grew its EBIT at 14% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Feiyu Technology International's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Feiyu Technology International 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 most recent three years, Feiyu Technology International recorded free cash flow worth 68% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Feiyu Technology International's liabilities, but we can be reassured by the fact it has has net cash of CN¥15.7m. And it impressed us with free cash flow of -CN¥12m, being 68% of its EBIT. So is Feiyu Technology International's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Feiyu Technology International (of which 1 can't be ignored!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.