Does Marketingforce Management (HKG:2556) Have A Healthy Balance Sheet?

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. We can see that Marketingforce Management Ltd (HKG:2556) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Marketingforce Management Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Marketingforce Management had CN¥1.55b of debt, an increase on CN¥900.1m, over one year. However, it does have CN¥1.84b in cash offsetting this, leading to net cash of CN¥297.9m.

How Strong Is Marketingforce Management's Balance Sheet?

According to the last reported balance sheet, Marketingforce Management had liabilities of CN¥2.73b due within 12 months, and liabilities of CN¥150.1m due beyond 12 months. On the other hand, it had cash of CN¥1.84b and CN¥326.9m worth of receivables due within a year. So its liabilities total CN¥705.4m more than the combination of its cash and short-term receivables.

Of course, Marketingforce Management has a market capitalization of CN¥13.0b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Marketingforce Management also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Marketingforce Management

We also note that Marketingforce Management improved its EBIT from a last year's loss to a positive CN¥11m. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Marketingforce Management'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Marketingforce Management 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 year, Marketingforce Management actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Marketingforce Management has CN¥297.9m in net cash. And it impressed us with free cash flow of CN¥128m, being 1,166% of its EBIT. So we don't have any problem with Marketingforce Management's use of debt. 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 Marketingforce Management .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.