Here's Why ZJLD Group (HKG:6979) Can Manage Its Debt Responsibly

Simply Wall St · 4d ago

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, ZJLD Group Inc (HKG:6979) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ZJLD Group's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 ZJLD Group had debt of CN¥510.2m, up from CN¥36.6m in one year. But it also has CN¥6.20b in cash to offset that, meaning it has CN¥5.69b net cash.

debt-equity-history-analysis
SEHK:6979 Debt to Equity History June 10th 2025

A Look At ZJLD Group's Liabilities

The latest balance sheet data shows that ZJLD Group had liabilities of CN¥5.60b due within a year, and liabilities of CN¥50.7m falling due after that. Offsetting this, it had CN¥6.20b in cash and CN¥577.5m in receivables that were due within 12 months. So it can boast CN¥1.13b more liquid assets than total liabilities.

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

See our latest analysis for ZJLD Group

On the other hand, ZJLD Group's EBIT dived 14%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ZJLD 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 ZJLD 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. During the last three years, ZJLD Group burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that ZJLD Group has net cash of CN¥5.69b, as well as more liquid assets than liabilities. So we are not troubled with ZJLD Group's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for ZJLD Group (1 is potentially serious) 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.