MINISO Group Holding (NYSE:MNSO) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 MINISO Group Holding Limited (NYSE:MNSO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 2 warning signs about MINISO Group Holding. View them for free.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is MINISO Group Holding's Debt?

As you can see below, at the end of December 2024, MINISO Group Holding had CN¥571.3m of debt, up from CN¥7.26m a year ago. Click the image for more detail. But on the other hand it also has CN¥6.70b in cash, leading to a CN¥6.13b net cash position.

A Look At MINISO Group Holding's Liabilities

According to the last reported balance sheet, MINISO Group Holding had liabilities of CN¥5.73b due within 12 months, and liabilities of CN¥2.04b due beyond 12 months. Offsetting this, it had CN¥6.70b in cash and CN¥1.25b in receivables that were due within 12 months. So it can boast CN¥187.0m more liquid assets than total liabilities.

Having regard to MINISO Group Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥38.2b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, MINISO Group Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for MINISO Group Holding

Also good is that MINISO Group Holding grew its EBIT at 16% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MINISO Group Holding'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 MINISO Group Holding 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, MINISO Group Holding produced sturdy free cash flow equating to 55% 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 investigate a company's debt, in this case MINISO Group Holding has CN¥6.13b in net cash and a decent-looking balance sheet. And we liked the look of last year's 16% year-on-year EBIT growth. So is MINISO Group Holding's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example MINISO Group Holding has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.