Here's Why LC Logistics (HKG:2490) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that LC Logistics, Inc. (HKG:2490) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 LC Logistics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 LC Logistics had CN¥95.1m of debt, an increase on CN¥22.8m, over one year. However, it does have CN¥633.7m in cash offsetting this, leading to net cash of CN¥538.6m.

How Healthy Is LC Logistics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that LC Logistics had liabilities of CN¥393.1m due within 12 months and liabilities of CN¥58.2m due beyond that. On the other hand, it had cash of CN¥633.7m and CN¥153.6m worth of receivables due within a year. So it can boast CN¥335.9m more liquid assets than total liabilities.

This surplus suggests that LC Logistics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, LC Logistics boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for LC Logistics

Even more impressive was the fact that LC Logistics grew its EBIT by 163% 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 LC Logistics'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. LC Logistics 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, LC Logistics saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case LC Logistics has CN¥538.6m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 163% over the last year. So we are not troubled with LC Logistics's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with LC Logistics (including 1 which makes us a bit uncomfortable) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.