Does Aluminum Corporation of China (HKG:2600) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Aluminum Corporation of China Limited (HKG:2600) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Aluminum Corporation of China's Debt?

You can click the graphic below for the historical numbers, but it shows that Aluminum Corporation of China had CN¥57.4b of debt in March 2025, down from CN¥64.2b, one year before. However, it also had CN¥27.1b in cash, and so its net debt is CN¥30.3b.

A Look At Aluminum Corporation of China's Liabilities

According to the last reported balance sheet, Aluminum Corporation of China had liabilities of CN¥50.0b due within 12 months, and liabilities of CN¥58.4b due beyond 12 months. On the other hand, it had cash of CN¥27.1b and CN¥12.7b worth of receivables due within a year. So it has liabilities totalling CN¥68.6b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Aluminum Corporation of China has a huge market capitalization of CN¥126.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt.

See our latest analysis for Aluminum Corporation of China

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Aluminum Corporation of China's net debt is only 0.80 times its EBITDA. And its EBIT easily covers its interest expense, being 29.0 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. On top of that, Aluminum Corporation of China grew its EBIT by 38% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Aluminum Corporation of China 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, Aluminum Corporation of China recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Our View

Happily, Aluminum Corporation of China's impressive interest cover implies it has the upper hand on its debt. But truth be told we feel its level of total liabilities does undermine this impression a bit. Looking at the bigger picture, we think Aluminum Corporation of China's use of debt seems quite reasonable and we're not concerned about it. After all, sensible leverage can boost returns on equity. Given Aluminum Corporation of China has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.