Key Takeaways
- Geely Automobile Holdings shows a net cash position of CN¥15.8b despite increasing debt.
- The company has a strong cash flow, converting over 197% of EBIT to free cash flow.
- Geely’s substantial market capitalization of CN¥174.5b allows for potential capital raises if needed.
Geely’s Debt Analysis
Investors often fret over share price volatility, but a more pressing concern is the risk of permanent loss, as highlighted by Howard Marks. For Geely Automobile Holdings Limited (HKG:175), understanding the implications of its debt is crucial. With total debt at CN¥19.5b as of March 2025—up from CN¥5.49b the previous year—investors may wonder if this is a red flag.
Debt poses a threat when a company struggles to meet its obligations, potentially leading to bankruptcy or the need to issue shares at low prices, which dilutes existing ownership. However, if managed effectively, debt can be advantageous. A key metric is examining a company’s net debt, which for Geely is CN¥15.8b, after accounting for its cash reserves of CN¥35.2b.
Assessing Geely’s liabilities, it has a total of CN¥155.5b due within a year and CN¥18.4b due later. The company’s cash and short-term receivables amount to CN¥108.5b, meaning its liabilities exceed assets by CN¥64.8b. While this may raise eyebrows, Geely’s significant market capitalization of CN¥174.5b indicates that it can raise funds if necessary, improving its balance sheet.
Notably, Geely’s EBIT grew by 226% over the last year, enhancing its ability to manage debt in the future. The focus should remain on the balance sheet, but future profitability will ultimately dictate the company’s financial health. Geely has successfully converted 197% of its EBIT into free cash flow, accumulating CN¥14b, underscoring its robust liquidity.
Despite liabilities exceeding liquid assets, Geely’s positive net cash and strong cash flow position suggest limited risk from debt. Yet, there remains at least one warning sign for potential investors to consider. For those seeking fast-growing companies with sound financial fundamentals, a review of stocks with net cash growth might be worthwhile.
In conclusion, while Geely does carry some liabilities, its impressive cash flow and market position indicate that the company is well-equipped to handle its debts. As always, vigilance is advised regarding the broader risks beyond balance sheets that could affect corporate health.
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