We Think CITIC Resources Holdings (HKG:1205) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, CITIC Resources Holdings Limited (HKG:1205) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is CITIC Resources Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 CITIC Resources Holdings had HK$4.30b of debt, an increase on HK$1.36b, over one year. But on the other hand it also has HK$4.42b in cash, leading to a HK$115.0m net cash position.

How Strong Is CITIC Resources Holdings' Balance Sheet?

According to the last reported balance sheet, CITIC Resources Holdings had liabilities of HK$6.20b due within 12 months, and liabilities of HK$1.93b due beyond 12 months. Offsetting this, it had HK$4.42b in cash and HK$1.98b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$1.73b.

This deficit isn't so bad because CITIC Resources Holdings is worth HK$3.34b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, CITIC Resources Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for CITIC Resources Holdings

In fact CITIC Resources Holdings's saving grace is its low debt levels, because its EBIT has tanked 82% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since CITIC Resources Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. CITIC Resources 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, CITIC Resources 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 CITIC Resources 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 HK$115.0m. And it impressed us with free cash flow of HK$264m, being 114% of its EBIT. So we are not troubled with CITIC Resources Holdings's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with CITIC Resources Holdings .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.