Here's Why ZTO Express (Cayman) (NYSE:ZTO) Can Manage Its Debt Responsibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies ZTO Express (Cayman) Inc. (NYSE:ZTO) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 ZTO Express (Cayman) Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 ZTO Express (Cayman) had CN¥18.4b of debt, an increase on CN¥17.6b, over one year. But on the other hand it also has CN¥26.5b in cash, leading to a CN¥8.14b net cash position.

How Strong Is ZTO Express (Cayman)'s Balance Sheet?

The latest balance sheet data shows that ZTO Express (Cayman) had liabilities of CN¥28.5b due within a year, and liabilities of CN¥1.31b falling due after that. On the other hand, it had cash of CN¥26.5b and CN¥2.37b worth of receivables due within a year. So it has liabilities totalling CN¥873.7m more than its cash and near-term receivables, combined.

Having regard to ZTO Express (Cayman)'s size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥110.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, ZTO Express (Cayman) also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for ZTO Express (Cayman)

The good news is that ZTO Express (Cayman) has increased its EBIT by 4.3% 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 ZTO Express (Cayman)'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While ZTO Express (Cayman) 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. During the last three years, ZTO Express (Cayman) produced sturdy free cash flow equating to 52% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that ZTO Express (Cayman) has CN¥8.14b in net cash. So we don't have any problem with ZTO Express (Cayman)'s use of debt. 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. For instance, we've identified 1 warning sign for ZTO Express (Cayman) that you should be aware of.

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.