Here's Why GL-Carlink Technology Holding (HKG:2531) Can Manage Its Debt Responsibly

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. We note that GL-Carlink Technology Holding Limited (HKG:2531) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. 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.

What Is GL-Carlink Technology Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 GL-Carlink Technology Holding had CN¥93.1m of debt, an increase on CN¥53.7m, over one year. However, it does have CN¥398.0m in cash offsetting this, leading to net cash of CN¥305.0m.

A Look At GL-Carlink Technology Holding's Liabilities

The latest balance sheet data shows that GL-Carlink Technology Holding had liabilities of CN¥230.5m due within a year, and liabilities of CN¥16.9m falling due after that. Offsetting this, it had CN¥398.0m in cash and CN¥160.9m in receivables that were due within 12 months. So it can boast CN¥311.6m more liquid assets than total liabilities.

This short term liquidity is a sign that GL-Carlink Technology Holding could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that GL-Carlink Technology Holding has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for GL-Carlink Technology Holding

On the other hand, GL-Carlink Technology Holding's EBIT dived 15%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But it is GL-Carlink Technology 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While GL-Carlink Technology Holding 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. Looking at the most recent three years, GL-Carlink Technology Holding recorded free cash flow of 30% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that GL-Carlink Technology Holding has net cash of CN¥305.0m, as well as more liquid assets than liabilities. So we are not troubled with GL-Carlink Technology Holding's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for GL-Carlink Technology Holding you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.