Is Meitu (HKG:1357) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Meitu, Inc. (HKG:1357) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Meitu's Debt?

You can click the graphic below for the historical numbers, but it shows that Meitu had CN¥182.9m of debt in June 2025, down from CN¥229.2m, one year before. However, its balance sheet shows it holds CN¥2.63b in cash, so it actually has CN¥2.44b net cash.

How Healthy Is Meitu's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Meitu had liabilities of CN¥1.75b due within 12 months and liabilities of CN¥183.7m due beyond that. Offsetting these obligations, it had cash of CN¥2.63b as well as receivables valued at CN¥470.3m due within 12 months. So it can boast CN¥1.17b more liquid assets than total liabilities.

This short term liquidity is a sign that Meitu could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Meitu boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Meitu

On top of that, Meitu grew its EBIT by 49% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Meitu 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Meitu 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. Over the last three years, Meitu actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Meitu has net cash of CN¥2.44b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CN¥934m, being 160% of its EBIT. So we don't think Meitu's use of debt is risky. 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. Be aware that Meitu is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.