Health Check: How Prudently Does Xunfei Healthcare Technology (HKG:2506) Use Debt?

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.' 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. As with many other companies Xunfei Healthcare Technology Co., Ltd. (HKG:2506) makes use of debt. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Xunfei Healthcare Technology Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Xunfei Healthcare Technology had debt of CN¥513.5m, up from CN¥194.0m in one year. But on the other hand it also has CN¥743.9m in cash, leading to a CN¥230.4m net cash position.

How Healthy Is Xunfei Healthcare Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Xunfei Healthcare Technology had liabilities of CN¥1.16b due within 12 months and liabilities of CN¥244.7m due beyond that. On the other hand, it had cash of CN¥743.9m and CN¥914.8m worth of receivables due within a year. So it actually has CN¥256.5m more liquid assets than total liabilities.

This surplus suggests that Xunfei Healthcare Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Xunfei Healthcare Technology has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Xunfei Healthcare Technology'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.

Check out our latest analysis for Xunfei Healthcare Technology

In the last year Xunfei Healthcare Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to CN¥803m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Xunfei Healthcare Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Xunfei Healthcare Technology had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥211m of cash and made a loss of CN¥77m. But the saving grace is the CN¥230.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Xunfei Healthcare Technology may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like Xunfei Healthcare Technology I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.