We Think BaTeLab (HKG:2149) Can Stay On Top Of Its Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, BaTeLab Co., Ltd. (HKG:2149) 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 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does BaTeLab Carry?

The image below, which you can click on for greater detail, shows that at June 2025 BaTeLab had debt of CN¥362.1m, up from CN¥241.8m in one year. But on the other hand it also has CN¥636.4m in cash, leading to a CN¥274.3m net cash position.

A Look At BaTeLab's Liabilities

The latest balance sheet data shows that BaTeLab had liabilities of CN¥623.6m due within a year, and liabilities of CN¥1.44m falling due after that. Offsetting this, it had CN¥636.4m in cash and CN¥72.1m in receivables that were due within 12 months. So it can boast CN¥83.5m more liquid assets than total liabilities.

This short term liquidity is a sign that BaTeLab could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BaTeLab has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for BaTeLab

On top of that, BaTeLab grew its EBIT by 38% over the last twelve months, and that growth will make it easier to handle its 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 BaTeLab'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. BaTeLab 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 three years, BaTeLab burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case BaTeLab has CN¥274.3m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 38% over the last year. So we are not troubled with BaTeLab's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for BaTeLab that you should be aware of.

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.