New Oriental Education & Technology Group (NYSE:EDU) Has A Rock Solid Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 New Oriental Education & Technology Group Inc. (NYSE:EDU) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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 New Oriental Education & Technology Group's Debt?

The chart below, which you can click on for greater detail, shows that New Oriental Education & Technology Group had US$14.4m in debt in February 2025; about the same as the year before. However, it does have US$4.29b in cash offsetting this, leading to net cash of US$4.28b.

A Look At New Oriental Education & Technology Group's Liabilities

According to the last reported balance sheet, New Oriental Education & Technology Group had liabilities of US$2.94b due within 12 months, and liabilities of US$529.0m due beyond 12 months. On the other hand, it had cash of US$4.29b and US$39.3m worth of receivables due within a year. So it can boast US$862.4m more liquid assets than total liabilities.

This surplus suggests that New Oriental Education & Technology Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that New Oriental Education & Technology Group has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for New Oriental Education & Technology Group

Also good is that New Oriental Education & Technology Group grew its EBIT at 15% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if New Oriental Education & Technology Group 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. While New Oriental Education & Technology 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. Happily for any shareholders, New Oriental Education & Technology Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case New Oriental Education & Technology Group has US$4.28b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$591m, being 155% of its EBIT. So is New Oriental Education & Technology Group's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in New Oriental Education & Technology Group, you may well want to click here to check an interactive graph of its earnings per share history.

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.