Is Jintai Energy Holdings (HKG:2728) Using Too Much 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Jintai Energy Holdings Limited (HKG:2728) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Jintai Energy Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Jintai Energy Holdings had debt of HK$165.8m, up from HK$154.8m in one year. However, it does have HK$291.9m in cash offsetting this, leading to net cash of HK$126.2m.

How Healthy Is Jintai Energy Holdings' Balance Sheet?

We can see from the most recent balance sheet that Jintai Energy Holdings had liabilities of HK$271.4m falling due within a year, and liabilities of HK$1.09m due beyond that. On the other hand, it had cash of HK$291.9m and HK$42.3m worth of receivables due within a year. So it can boast HK$61.7m more liquid assets than total liabilities.

This surplus liquidity suggests that Jintai Energy Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Jintai Energy Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Jintai Energy Holdings

Notably, Jintai Energy Holdings made a loss at the EBIT level, last year, but improved that to positive EBIT of HK$4.7m in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is Jintai Energy Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Jintai Energy Holdings 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. Happily for any shareholders, Jintai Energy Holdings actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Jintai Energy Holdings has HK$126.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 169% of that EBIT to free cash flow, bringing in HK$8.0m. So we don't think Jintai Energy Holdings's use of debt is risky. 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. For example, we've discovered 3 warning signs for Jintai Energy Holdings (2 are potentially serious!) that you should be aware of before investing here.

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.