These 4 Measures Indicate That Johnson Electric Holdings (HKG:179) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Johnson Electric Holdings Limited (HKG:179) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Johnson Electric Holdings Carry?

As you can see below, Johnson Electric Holdings had US$359.7m of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has US$936.9m in cash to offset that, meaning it has US$577.2m net cash.

How Healthy Is Johnson Electric Holdings' Balance Sheet?

We can see from the most recent balance sheet that Johnson Electric Holdings had liabilities of US$932.6m falling due within a year, and liabilities of US$503.8m due beyond that. Offsetting these obligations, it had cash of US$936.9m as well as receivables valued at US$685.6m due within 12 months. So it can boast US$186.1m more liquid assets than total liabilities.

This surplus suggests that Johnson Electric Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Johnson Electric Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Johnson Electric Holdings

Johnson Electric Holdings'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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Johnson Electric Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Johnson Electric Holdings 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. Over the last three years, Johnson Electric Holdings actually produced more free cash flow than EBIT. 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 Johnson Electric Holdings has US$577.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 108% of that EBIT to free cash flow, bringing in US$284m. So is Johnson Electric Holdings's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Johnson Electric Holdings, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.