"Did you hear that you recently bought a BYD?"
"Yeah, it's an electric car, saves on fuel, is environmentally friendly, and the best part is, it's cheap!"
"Well, did you know that BYD has a very high debt ratio?"
"High? I thought BYD was making a lot of money. How could they have such a high debt ratio?"
This conversation might reflect the real feelings of many people towards BYD. As a "leader" in the new energy vehicle industry, BYD's achievements are evident, with sales rising steadily, and its brand influence growing. However, alongside this "high growth," there is also a high debt ratio.
In the eyes of many, BYD seems like a company with vast wealth. However, the "high debt" behind BYD hides some unknown secrets.
Many might be confused or even worried about this phenomenon. After all, a "high debt ratio" often leads to thoughts of "risk" and "crisis." But is that really the case?
BYD’s high debt ratio does not necessarily mean it is in a precarious situation. On the contrary, these debts could be key "leverage" driving BYD's continued development.
We need to understand that, in many cases, high debt is not inherently bad. It can signify that a company is aggressively expanding its business, investing in research and development, or building new production lines.
It’s similar to buying a house. If you only pay a small portion as a down payment and borrow the rest, it may seem like a lot of debt. But as long as you have the ability to repay, that "high debt" helped you buy the house, and in the future, you can benefit from the property's appreciation.
BYD's "high debt" operates on the same principle.
In recent years, BYD has been making large-scale investments in building factories, developing new technologies, and expanding into new business sectors. All these investments require capital. Besides using its own funds, BYD relies on external financing, i.e., debt.
We can think of BYD's debt as "borrowed power." This borrowed power is used for expansion. These investments will bring more returns, helping BYD repay its debt, and even generate higher profits.
Simply relying on "borrowed power" is not enough; the key to success lies in BYD's own "strength."
It’s like an athlete aiming for good performance—besides rigorous training, they also need professional coaches and advanced equipment, all of which require significant financial investment.
BYD is operating in a highly competitive market. To secure its position, it must keep investing, innovating, and breaking through.
So, what’s the real story behind BYD's "high debt"? Will these debts bring real risks to BYD?
We need to be clear about one point: a high debt ratio does not necessarily equate to risk. The key lies in the structure of the debt and the company's ability to repay.
BYD's debt can be broadly divided into two categories: interest-bearing debt and non-interest-bearing debt.
Interest-bearing debt refers to debt that requires interest payments, such as bank loans or bonds. Non-interest-bearing debt refers to debts that don’t require interest payments, such as accounts payable and notes payable.
In BYD’s debt structure, non-interest-bearing debt accounts for a large portion, while interest-bearing debt is relatively small.
This is like shopping at a supermarket—if you pay in cash, there’s no interest. But if you use a credit card, you’ll have to pay interest.
For BYD, non-interest-bearing debt is like paying with cash—no extra interest is paid. On the other hand, interest-bearing debt is like using a credit card, which incurs some interest.
When analyzing BYD's debt ratio, we need to focus on the ratio between non-interest-bearing debt and interest-bearing debt.
If non-interest-bearing debt makes up a higher proportion, the company’s debt repayment pressure will be relatively small because no interest is involved.
BYD’s high proportion of non-interest-bearing debt is largely due to its rapidly growing business.
With increasing sales, BYD's accounts payable and notes payable also continue to rise—these are non-interest-bearing debts.
It’s similar to running a clothing store. If sales are strong, customers will keep paying, which increases accounts receivable, and these are non-interest-bearing debts.
Although accounts receivable tie up funds, they also represent future income. As long as the business continues to thrive, those receivables can be used to pay off debts.
BYD’s non-interest-bearing debt works on the same principle—these debts represent future income. As long as BYD's business continues to grow rapidly, the revenue from these accounts can be used to repay debts.
Although BYD's debt ratio is high, the pressure from this debt is actually manageable. In fact, it provides BYD with greater development space, which can be used to expand production capacity, invest in new technologies, and ultimately generate higher returns.
However, we cannot overlook the impact of interest-bearing debt.
Although BYD's interest-bearing debt is relatively low, if not effectively controlled, it could still create some pressure on the company.
To ensure its secure operations, BYD must continually improve its ability to repay debts.
This is like buying a house—although you only put down a small down payment, to prevent a situation where you can’t repay the loan, you must continue to improve your income level.
How can BYD improve its ability to repay debt?
We can analyze this from several perspectives:
1. BYD’s cash flow situation is strong.
This is like having a high income, which naturally reduces the pressure of repayment.
BYD's cash flow mainly comes from two sources: sales revenue and financing.
BYD’s increasing sales have generated a substantial cash flow.
BYD’s strong financing ability allows it to obtain funds from banks, bond markets, etc., providing it with ample cash flow.
Sufficient cash flow ensures that BYD has enough funds to repay its debts, which is one of the main reasons BYD can handle a high level of debt.
2. BYD’s profitability is strong.
This is like having high income and low expenses.
BYD’s strong profitability stems from its product competitiveness and optimized cost control.
BYD’s electric vehicle products are performing excellently in terms of sales, and its ability to control costs is also outstanding, enabling it to maintain a high profit margin.
The high profits generate more cash flow, which helps BYD repay its debts.
This is like owning a highly valuable property, making it easier for banks to lend to you.
This ensures that if needed, BYD can sell assets to raise funds and repay debts.
BYD’s "high debt" is not a sign of imminent danger but reflects its aggressive expansion strategy and strong profitability.
BYD's "high debt" is actually a booster for its rapid development, providing more space for future growth and greater returns for investors.
As investors, we should remain rational, observe BYD's future development trends, and exercise caution when making investment decisions.
