Geely Automobile Holdings (HKG:175) Has A Rock Solid Balance Sheet
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 note that Geely Automobile Holdings Limited (HKG:175) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Geely Automobile Holdings's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Geely Automobile Holdings had CN¥14.9b of debt, an increase on CN¥6.75b, over one year. But it also has CN¥70.7b in cash to offset that, meaning it has CN¥55.9b net cash.
How Strong Is Geely Automobile Holdings' Balance Sheet?
According to the last reported balance sheet, Geely Automobile Holdings had liabilities of CN¥158.1b due within 12 months, and liabilities of CN¥20.5b due beyond 12 months. Offsetting these obligations, it had cash of CN¥70.7b as well as receivables valued at CN¥52.0b due within 12 months. So it has liabilities totalling CN¥55.9b more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Geely Automobile Holdings has a huge market capitalization of CN¥162.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Geely Automobile Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for Geely Automobile Holdings
Better yet, Geely Automobile Holdings grew its EBIT by 127% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Geely Automobile Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Geely Automobile 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 last three years, Geely Automobile Holdings actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Summing Up
While Geely Automobile Holdings does have more liabilities than liquid assets, it also has net cash of CN¥55.9b. And it impressed us with free cash flow of CN¥11b, being 149% of its EBIT. So we don't think Geely Automobile Holdings's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Geely Automobile Holdings, you may well want to click here to check an interactive graph of its earnings per share history.
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.
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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.