These 4 Measures Indicate That Zhejiang Shibao (HKG:1057) Is Using Debt Reasonably Well

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Zhejiang Shibao Company Limited (HKG:1057) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Zhejiang Shibao's Debt?

As you can see below, at the end of September 2025, Zhejiang Shibao had CN¥121.6m of debt, up from CN¥61.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥544.7m in cash, so it actually has CN¥423.1m net cash.

How Healthy Is Zhejiang Shibao's Balance Sheet?

According to the last reported balance sheet, Zhejiang Shibao had liabilities of CN¥1.55b due within 12 months, and liabilities of CN¥50.6m due beyond 12 months. Offsetting these obligations, it had cash of CN¥544.7m as well as receivables valued at CN¥1.42b due within 12 months. So it can boast CN¥363.7m more liquid assets than total liabilities.

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

Check out our latest analysis for Zhejiang Shibao

And we also note warmly that Zhejiang Shibao grew its EBIT by 20% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Zhejiang Shibao's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Zhejiang Shibao 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, Zhejiang Shibao 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 it is always sensible to investigate a company's debt, in this case Zhejiang Shibao has CN¥423.1m in net cash and a decent-looking balance sheet. And we liked the look of last year's 20% year-on-year EBIT growth. So we don't have any problem with Zhejiang Shibao's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Zhejiang Shibao , and understanding them should be part of your investment process.

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.