Meituan (HKG:3690) Has A Rock Solid Balance Sheet

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.' 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 Meituan (HKG:3690) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Meituan's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Meituan had debt of CN¥56.1b, up from CN¥47.4b in one year. But it also has CN¥180.4b in cash to offset that, meaning it has CN¥124.3b net cash.

How Strong Is Meituan's Balance Sheet?

The latest balance sheet data shows that Meituan had liabilities of CN¥105.6b due within a year, and liabilities of CN¥44.2b falling due after that. Offsetting these obligations, it had cash of CN¥180.4b as well as receivables valued at CN¥2.90b due within 12 months. So it actually has CN¥33.5b more liquid assets than total liabilities.

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

Check out our latest analysis for Meituan

Even more impressive was the fact that Meituan grew its EBIT by 229% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 Meituan'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Meituan 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, Meituan 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 Meituan has CN¥124.3b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥50b, being 213% of its EBIT. So we don't think Meituan's use of debt is risky. We'd be very excited to see if Meituan insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.