Does Guanze Medical Information Industry (Holding) (HKG:2427) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Guanze Medical Information Industry (Holding) Co., Ltd. (HKG:2427) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Guanze Medical Information Industry (Holding) Carry?

You can click the graphic below for the historical numbers, but it shows that Guanze Medical Information Industry (Holding) had CN¥15.0m of debt in June 2025, down from CN¥18.5m, one year before. But on the other hand it also has CN¥34.0m in cash, leading to a CN¥18.9m net cash position.

How Healthy Is Guanze Medical Information Industry (Holding)'s Balance Sheet?

According to the balance sheet data, Guanze Medical Information Industry (Holding) had liabilities of CN¥40.5m due within 12 months, but no longer term liabilities. Offsetting these obligations, it had cash of CN¥34.0m as well as receivables valued at CN¥146.1m due within 12 months. So it actually has CN¥139.6m more liquid assets than total liabilities.

This surplus strongly suggests that Guanze Medical Information Industry (Holding) has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Guanze Medical Information Industry (Holding) boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Guanze Medical Information Industry (Holding)

But the other side of the story is that Guanze Medical Information Industry (Holding) saw its EBIT decline by 2.9% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is Guanze Medical Information Industry (Holding)'s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Guanze Medical Information Industry (Holding) 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. In the last three years, Guanze Medical Information Industry (Holding) created free cash flow amounting to 10% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Guanze Medical Information Industry (Holding) has net cash of CN¥18.9m, as well as more liquid assets than liabilities. So we are not troubled with Guanze Medical Information Industry (Holding)'s debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Guanze Medical Information Industry (Holding) has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.