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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Tianjin Port Holdings Co., Ltd. (SHSE:600717) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Tianjin Port Holdings

What Is Tianjin Port Holdings's Net Debt?

As you can see below, Tianjin Port Holdings had CN¥4.87b of debt at September 2024, down from CN¥5.46b a year prior. However, it does have CN¥5.76b in cash offsetting this, leading to net cash of CN¥893.5m.

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. On the other hand, it had cash of CN¥5.76b and CN¥2.07b worth of receivables due within a year. So its liabilities total CN¥1.80b more than the combination of its cash and short-term receivables.

Given Tianjin Port Holdings has a market capitalization of CN¥13.8b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Tianjin Port 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Tianjin Port 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. Over the last three years, Tianjin Port Holdings actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

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 is Tianjin Port Holdings's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Tianjin Port Holdings you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.