Does Hapag-Lloyd (ETR:HLAG) Have A Healthy Balance Sheet?

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. Importantly, Hapag-Lloyd Aktiengesellschaft (ETR:HLAG) does carry debt. But should shareholders be worried about its use of debt?

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Hapag-Lloyd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Hapag-Lloyd had €2.76b of debt in June 2025, down from €2.93b, one year before. However, its balance sheet shows it holds €3.60b in cash, so it actually has €832.4m net cash.

How Healthy Is Hapag-Lloyd's Balance Sheet?

According to the last reported balance sheet, Hapag-Lloyd had liabilities of €6.33b due within 12 months, and liabilities of €5.17b due beyond 12 months. Offsetting this, it had €3.60b in cash and €2.11b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €5.80b.

Hapag-Lloyd has a very large market capitalization of €21.1b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Hapag-Lloyd also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Hapag-Lloyd

Better yet, Hapag-Lloyd grew its EBIT by 187% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hapag-Lloyd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Hapag-Lloyd 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, Hapag-Lloyd 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

While Hapag-Lloyd does have more liabilities than liquid assets, it also has net cash of €832.4m. The cherry on top was that in converted 110% of that EBIT to free cash flow, bringing in €2.4b. So we don't think Hapag-Lloyd's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Hapag-Lloyd has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.