These 4 Measures Indicate That QuantaSing Group (NASDAQ:QSG) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. We can see that QuantaSing Group Limited (NASDAQ:QSG) does use debt in its business. But the real question is whether this debt is making the company risky.

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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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is QuantaSing Group's Debt?

As you can see below, at the end of March 2025, QuantaSing Group had CN¥14.5m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥1.13b in cash, so it actually has CN¥1.12b net cash.

A Look At QuantaSing Group's Liabilities

Zooming in on the latest balance sheet data, we can see that QuantaSing Group had liabilities of CN¥798.7m due within 12 months and liabilities of CN¥78.9m due beyond that. Offsetting this, it had CN¥1.13b in cash and CN¥37.9m in receivables that were due within 12 months. So it actually has CN¥294.5m more liquid assets than total liabilities.

This short term liquidity is a sign that QuantaSing Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, QuantaSing Group boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for QuantaSing Group

Even more impressive was the fact that QuantaSing Group grew its EBIT by 175% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine QuantaSing Group'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. While QuantaSing Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent two years, QuantaSing Group recorded free cash flow of 38% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that QuantaSing Group has net cash of CN¥1.12b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 175% over the last year. So we don't think QuantaSing Group's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that QuantaSing Group is showing 2 warning signs in our investment analysis , you should know about...

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.