BYD Electronic (International) (HKG:285) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies BYD Electronic (International) Company Limited (HKG:285) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 BYD Electronic (International)'s Net Debt?

As you can see below, BYD Electronic (International) had CN¥9.65b of debt at June 2025, down from CN¥15.6b a year prior. However, its balance sheet shows it holds CN¥13.1b in cash, so it actually has CN¥3.43b net cash.

How Strong Is BYD Electronic (International)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BYD Electronic (International) had liabilities of CN¥47.3b due within 12 months and liabilities of CN¥2.48b due beyond that. Offsetting these obligations, it had cash of CN¥13.1b as well as receivables valued at CN¥17.4b due within 12 months. So it has liabilities totalling CN¥19.2b more than its cash and near-term receivables, combined.

This deficit isn't so bad because BYD Electronic (International) is worth a massive CN¥80.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, BYD Electronic (International) boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for BYD Electronic (International)

The good news is that BYD Electronic (International) has increased its EBIT by 6.3% over twelve months, which should ease any concerns about debt repayment. 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 BYD Electronic (International)'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. BYD Electronic (International) 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, BYD Electronic (International) actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While BYD Electronic (International) does have more liabilities than liquid assets, it also has net cash of CN¥3.43b. And it impressed us with free cash flow of CN¥13b, being 197% of its EBIT. So we don't think BYD Electronic (International)'s use of debt is risky. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that BYD Electronic (International) insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.