Does Zhenro Services Group (HKG:6958) 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.' 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. We note that Zhenro Services Group Limited (HKG:6958) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Zhenro Services Group's Debt?

The image below, which you can click on for greater detail, shows that Zhenro Services Group had debt of CN¥53.9m at the end of June 2025, a reduction from CN¥69.1m over a year. However, its balance sheet shows it holds CN¥548.4m in cash, so it actually has CN¥494.5m net cash.

How Healthy Is Zhenro Services Group's Balance Sheet?

According to the last reported balance sheet, Zhenro Services Group had liabilities of CN¥801.9m due within 12 months, and liabilities of CN¥97.5m due beyond 12 months. Offsetting these obligations, it had cash of CN¥548.4m as well as receivables valued at CN¥439.0m due within 12 months. So it actually has CN¥88.1m more liquid assets than total liabilities.

This luscious liquidity implies that Zhenro Services Group's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Zhenro Services Group has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Zhenro Services Group

It was also good to see that despite losing money on the EBIT line last year, Zhenro Services Group turned things around in the last 12 months, delivering and EBIT of CN¥72m. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Zhenro Services Group will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Zhenro Services Group 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. During the last year, Zhenro Services Group produced sturdy free cash flow equating to 54% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Zhenro Services Group has CN¥494.5m in net cash and a decent-looking balance sheet. So we don't think Zhenro Services Group's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Zhenro Services Group has 2 warning signs (and 1 which shouldn't be ignored) we think 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.