Warren Buffett famously said, '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. Importantly, Want Want China Holdings Limited (HKG:151) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Want Want China Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Want Want China Holdings had debt of CN¥4.15b at the end of March 2025, a reduction from CN¥5.35b over a year. However, its balance sheet shows it holds CN¥8.35b in cash, so it actually has CN¥4.19b net cash.

A Look At Want Want China Holdings' Liabilities

The latest balance sheet data shows that Want Want China Holdings had liabilities of CN¥8.54b due within a year, and liabilities of CN¥925.1m falling due after that. Offsetting these obligations, it had cash of CN¥8.35b as well as receivables valued at CN¥793.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥321.1m.

This state of affairs indicates that Want Want China 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¥58.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Want Want China Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Want Want China Holdings

The good news is that Want Want China Holdings has increased its EBIT by 3.7% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Want Want China Holdings'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, a company can only pay off debt with cold hard cash, not accounting profits. Want Want China 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. Over the most recent three years, Want Want China Holdings recorded free cash flow worth 55% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 look at a company's total liabilities, it is very reassuring that Want Want China Holdings has CN¥4.19b in net cash. So we don't think Want Want China Holdings's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Want Want China Holdings you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.