Hapag-Lloyd (ETR:HLAG) Seems To Use Debt Rather Sparingly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Debt?

The chart below, which you can click on for greater detail, shows that Hapag-Lloyd had €2.80b in debt in March 2025; about the same as the year before. But on the other hand it also has €5.45b in cash, leading to a €2.65b net cash position.

A Look At Hapag-Lloyd's Liabilities

According to the last reported balance sheet, Hapag-Lloyd had liabilities of €7.03b due within 12 months, and liabilities of €5.43b due beyond 12 months. Offsetting these obligations, it had cash of €5.45b as well as receivables valued at €2.34b due within 12 months. So its liabilities total €4.67b more than the combination of its cash and short-term receivables.

Given Hapag-Lloyd has a humongous market capitalization of €25.4b, 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, Hapag-Lloyd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Hapag-Lloyd

Even more impressive was the fact that Hapag-Lloyd grew its EBIT by 128% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Hapag-Lloyd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Hapag-Lloyd 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, 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 €2.65b. The cherry on top was that in converted 107% of that EBIT to free cash flow, bringing in €2.5b. So is Hapag-Lloyd'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. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Hapag-Lloyd is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

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.