Does Tianjin Port Holdings (SHSE:600717) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Tianjin Port Holdings Co., Ltd. (SHSE:600717) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Tianjin Port Holdings

What Is Tianjin Port Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Tianjin Port Holdings had debt of CN¥4.87b at the end of September 2024, a reduction from CN¥5.46b over a year. But on the other hand it also has CN¥5.76b in cash, leading to a CN¥893.5m net cash position.

A Look At Tianjin Port Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Tianjin Port Holdings had liabilities of CN¥5.77b due within 12 months and liabilities of CN¥3.87b due beyond that. Offsetting these obligations, it had cash of CN¥5.76b as well as receivables valued at CN¥2.07b due within 12 months. So it has liabilities totalling CN¥1.80b more than its cash and near-term receivables, combined.

Of course, Tianjin Port Holdings has a market capitalization of CN¥14.6b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Tianjin Port Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Tianjin Port Holdings saw its EBIT drop by 6.9% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Tianjin Port Holdings'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Tianjin Port Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Tianjin Port Holdings actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Tianjin Port Holdings's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CN¥893.5m. And it impressed us with free cash flow of CN¥1.8b, being 113% of its EBIT. So we don't think Tianjin Port Holdings's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Tianjin Port Holdings has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.