Bayzed Health Group (HKG:2609) Has A Pretty Healthy Balance Sheet

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.' 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. We note that Bayzed Health Group Inc (HKG:2609) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. 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, together.

What Is Bayzed Health Group's Net Debt?

As you can see below, at the end of June 2025, Bayzed Health Group had CN¥424.6m of debt, up from CN¥407.3m a year ago. Click the image for more detail. But it also has CN¥835.2m in cash to offset that, meaning it has CN¥410.6m net cash.

How Strong Is Bayzed Health Group's Balance Sheet?

We can see from the most recent balance sheet that Bayzed Health Group had liabilities of CN¥749.0m falling due within a year, and liabilities of CN¥283.8m due beyond that. Offsetting these obligations, it had cash of CN¥835.2m as well as receivables valued at CN¥234.2m due within 12 months. So it can boast CN¥36.6m more liquid assets than total liabilities.

This state of affairs indicates that Bayzed Health Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥4.95b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Bayzed Health Group has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Bayzed Health Group

The bad news is that Bayzed Health Group saw its EBIT decline by 10% over the last year. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. There's no doubt that we learn most about debt from the balance sheet. But it is Bayzed Health Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Bayzed Health Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Bayzed Health Group actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Bayzed Health Group has CN¥410.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 478% of that EBIT to free cash flow, bringing in CN¥137m. So we don't have any problem with Bayzed Health Group's use of debt. Even though Bayzed Health Group lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.