Greentown Service Group (HKG:2869) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Greentown Service Group Co. Ltd. (HKG:2869) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Greentown Service Group Carry?

You can click the graphic below for the historical numbers, but it shows that Greentown Service Group had CN¥87.0m of debt in June 2025, down from CN¥343.6m, one year before. However, it does have CN¥5.25b in cash offsetting this, leading to net cash of CN¥5.16b.

How Strong Is Greentown Service Group's Balance Sheet?

The latest balance sheet data shows that Greentown Service Group had liabilities of CN¥9.36b due within a year, and liabilities of CN¥549.6m falling due after that. Offsetting this, it had CN¥5.25b in cash and CN¥6.42b in receivables that were due within 12 months. So it actually has CN¥1.76b more liquid assets than total liabilities.

This surplus suggests that Greentown Service Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Greentown Service Group boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Greentown Service Group

Also good is that Greentown Service Group grew its EBIT at 13% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Greentown Service Group's ability to maintain a healthy balance sheet going forward. 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 company can only pay off debt with cold hard cash, not accounting profits. While Greentown Service Group 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. During the last three years, Greentown Service Group produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Greentown Service Group has net cash of CN¥5.16b, as well as more liquid assets than liabilities. The cherry on top was that in converted 77% of that EBIT to free cash flow, bringing in CN¥1.2b. So is Greentown Service Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Greentown Service Group .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.