David Iben put it well when he declared, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. Importantly, Weichai Power Co., Ltd. (HKG:2338) does carry debt. But should shareholders be worried about its utilize of debt?
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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
How Much Debt Does Weichai Power Carry?
As you can see below, at the conclude of September 2025, Weichai Power had CN¥44.6b of debt, up from CN¥39.9b a year ago. Click the image for more detail. But it also has CN¥82.4b in cash to offset that, meaning it has CN¥37.8b net cash.
How Strong Is Weichai Power’s Balance Sheet?
The latest balance sheet data reveals that Weichai Power had liabilities of CN¥157.9b due within a year, and liabilities of CN¥74.8b falling due after that. On the other hand, it had cash of CN¥82.4b and CN¥66.3b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥84.0b.
While this might seem like a lot, it is not so bad since Weichai Power has a huge market capitalization of CN¥193.6b, and so it could probably strengthen its balance sheet by raising capital if it necessaryed to. But it’s clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Weichai Power also has more cash than debt, so we’re pretty confident it can manage its debt safely.
See our latest analysis for Weichai Power
Weichai Power’s EBIT was pretty flat over the last year, but that shouldn’t be an issue given the it doesn’t have a lot of debt. 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 Weichai Power’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals believe, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Weichai Power may have net cash on the balance sheet, but it is still interesting to see at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, becautilize that will influence both its necessary for, and its capacity to manage debt. Over the last three years, Weichai Power actually produced more free cash flow than EBIT. There’s nothing better than incoming cash when it comes to staying in your lconcludeers’ good graces.
Summing Up
Although Weichai Power’s balance sheet isn’t particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CN¥37.8b. The cherry on top was that in converted 111% of that EBIT to free cash flow, bringing in CN¥21b. So we are not troubled with Weichai Power’s debt utilize. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example – Weichai Power has 1 warning sign we believe 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 applying an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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