Does Kuaishou Technology (HKG:1024) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Kuaishou Technology (HKG:1024) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Kuaishou Technology's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Kuaishou Technology had debt of CN¥12.2b, up from CN¥4.50b in one year. However, its balance sheet shows it holds CN¥57.3b in cash, so it actually has CN¥45.1b net cash.

How Healthy Is Kuaishou Technology's Balance Sheet?

We can see from the most recent balance sheet that Kuaishou Technology had liabilities of CN¥66.9b falling due within a year, and liabilities of CN¥17.9b due beyond that. On the other hand, it had cash of CN¥57.3b and CN¥11.6b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥15.9b.

Since publicly traded Kuaishou Technology shares are worth a very impressive total of CN¥270.2b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Kuaishou Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Kuaishou Technology

Also good is that Kuaishou Technology grew its EBIT at 18% 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 future earnings, more than anything, that will determine Kuaishou Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Kuaishou Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Kuaishou Technology actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about Kuaishou Technology's liabilities, but we can be reassured by the fact it has has net cash of CN¥45.1b. And it impressed us with free cash flow of CN¥15b, being 143% of its EBIT. So we don't think Kuaishou Technology's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Kuaishou Technology, you may well want to click here to check an interactive graph of its earnings per share history.

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.