Here's Why Sinotruk (Hong Kong) (HKG:3808) Can Manage Its Debt Responsibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that Sinotruk (Hong Kong) Limited (HKG:3808) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sinotruk (Hong Kong)'s Debt?

You can click the graphic below for the historical numbers, but it shows that Sinotruk (Hong Kong) had CN¥6.65b of debt in June 2025, down from CN¥7.59b, one year before. However, its balance sheet shows it holds CN¥44.1b in cash, so it actually has CN¥37.4b net cash.

How Healthy Is Sinotruk (Hong Kong)'s Balance Sheet?

We can see from the most recent balance sheet that Sinotruk (Hong Kong) had liabilities of CN¥87.4b falling due within a year, and liabilities of CN¥1.59b due beyond that. Offsetting these obligations, it had cash of CN¥44.1b as well as receivables valued at CN¥31.3b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥13.6b.

Sinotruk (Hong Kong) has a market capitalization of CN¥61.3b, 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. Despite its noteworthy liabilities, Sinotruk (Hong Kong) boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sinotruk (Hong Kong)

The good news is that Sinotruk (Hong Kong) has increased its EBIT by 2.5% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Sinotruk (Hong Kong) can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Sinotruk (Hong Kong) 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, Sinotruk (Hong Kong) actually produced more free cash flow than EBIT over the last three years. 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 Sinotruk (Hong Kong)'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¥37.4b. And it impressed us with free cash flow of CN¥5.8b, being 158% of its EBIT. So we don't think Sinotruk (Hong Kong)'s use of debt is risky. 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. Case in point: We've spotted 1 warning sign for Sinotruk (Hong Kong) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.