Does Li Auto (NASDAQ:LI) 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. As with many other companies Li Auto Inc. (NASDAQ:LI) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Li Auto's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Li Auto had CN¥8.38b of debt in March 2025, down from CN¥8.94b, one year before. However, its balance sheet shows it holds CN¥110.7b in cash, so it actually has CN¥102.3b net cash.

How Strong Is Li Auto's Balance Sheet?

The latest balance sheet data shows that Li Auto had liabilities of CN¥67.5b due within a year, and liabilities of CN¥22.1b falling due after that. On the other hand, it had cash of CN¥110.7b and CN¥68.5m worth of receivables due within a year. So it actually has CN¥21.2b more liquid assets than total liabilities.

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

View our latest analysis for Li Auto

Another good sign is that Li Auto has been able to increase its EBIT by 23% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Li Auto can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Li Auto 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 two years, Li Auto 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 it is always sensible to investigate a company's debt, in this case Li Auto has CN¥102.3b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥9.8b, being 300% of its EBIT. So is Li Auto'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. For example, we've discovered 1 warning sign for Li Auto that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.