KE Holdings (NYSE:BEKE) Seems To Use Debt Rather Sparingly

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.' 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. As with many other companies KE Holdings Inc. (NYSE:BEKE) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does KE Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that KE Holdings had CN¥182.0m of debt in March 2025, down from CN¥408.4m, one year before. But on the other hand it also has CN¥44.6b in cash, leading to a CN¥44.5b net cash position.

A Look At KE Holdings' Liabilities

We can see from the most recent balance sheet that KE Holdings had liabilities of CN¥52.8b falling due within a year, and liabilities of CN¥8.90b due beyond that. Offsetting this, it had CN¥44.6b in cash and CN¥7.80b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥9.21b.

Since publicly traded KE Holdings shares are worth a very impressive total of CN¥155.7b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, KE Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for KE Holdings

Better yet, KE Holdings grew its EBIT by 134% last year, which is an impressive improvement. 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 KE Holdings'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 KE Holdings 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. Over the last three years, KE Holdings 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

We could understand if investors are concerned about KE Holdings's liabilities, but we can be reassured by the fact it has has net cash of CN¥44.5b. And it impressed us with free cash flow of CN¥6.6b, being 227% of its EBIT. So we don't think KE Holdings's use of debt is risky. Another factor that would give us confidence in KE Holdings would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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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.