Does Vipshop Holdings (NYSE:VIPS) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Vipshop Holdings Limited (NYSE:VIPS) does have debt on its balance sheet. 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Vipshop Holdings Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Vipshop Holdings had debt of CN¥4.44b, up from CN¥2.49b in one year. However, its balance sheet shows it holds CN¥28.6b in cash, so it actually has CN¥24.1b net cash.

How Strong Is Vipshop Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Vipshop Holdings had liabilities of CN¥29.3b due within 12 months and liabilities of CN¥3.48b due beyond that. Offsetting this, it had CN¥28.6b in cash and CN¥4.20b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Vipshop Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥55.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Vipshop Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Vipshop Holdings

On the other hand, Vipshop Holdings's EBIT dived 14%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Vipshop Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Vipshop Holdings 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. During the last three years, Vipshop Holdings generated free cash flow amounting to a very robust 85% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Vipshop Holdings has CN¥24.1b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in CN¥5.6b. So we don't have any problem with Vipshop Holdings's use of debt. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Vipshop Holdings's dividend history, without delay!

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.