Here's Why Qian Xun Technology (HKG:1640) Can Afford Some Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. We can see that Qian Xun Technology Limited (HKG:1640) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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 Qian Xun Technology Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Qian Xun Technology had debt of CN¥234.8m, up from CN¥109.8m in one year. However, it also had CN¥110.6m in cash, and so its net debt is CN¥124.2m.

How Healthy Is Qian Xun Technology's Balance Sheet?

According to the last reported balance sheet, Qian Xun Technology had liabilities of CN¥474.5m due within 12 months, and liabilities of CN¥29.0m due beyond 12 months. Offsetting these obligations, it had cash of CN¥110.6m as well as receivables valued at CN¥161.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥231.9m.

Given Qian Xun Technology has a market capitalization of CN¥1.58b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Qian Xun Technology will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Qian Xun Technology

In the last year Qian Xun Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 311%, to CN¥937m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Qian Xun Technology's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost CN¥81m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥137m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Qian Xun Technology that you should be aware of.

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.