These 4 Measures Indicate That Aluminum Corporation of China (HKG:2600) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Aluminum Corporation of China Limited (HKG:2600) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Aluminum Corporation of China Carry?

As you can see below, Aluminum Corporation of China had CN¥53.5b of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥34.3b in cash offsetting this, leading to net debt of about CN¥19.1b.

How Healthy Is Aluminum Corporation of China's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aluminum Corporation of China had liabilities of CN¥48.3b due within 12 months and liabilities of CN¥58.6b due beyond that. Offsetting this, it had CN¥34.3b in cash and CN¥12.5b in receivables that were due within 12 months. So it has liabilities totalling CN¥60.0b 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¥178.3b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.

View our latest analysis for Aluminum Corporation of China

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Aluminum Corporation of China's net debt is only 0.48 times its EBITDA. And its EBIT covers its interest expense a whopping 32.8 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Also positive, Aluminum Corporation of China grew its EBIT by 20% in the last year, and that should make it easier to pay down debt, going forward. 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 Aluminum Corporation of China's ability to maintain a healthy balance sheet going forward. 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 the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Aluminum Corporation of China recorded free cash flow worth a fulsome 93% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Our View

Happily, Aluminum Corporation of China's impressive interest cover implies it has the upper hand on its debt. And that's just the beginning of the good news since its conversion of EBIT to free cash flow is also very heartening. 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. 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. For example, we've discovered 1 warning sign for Aluminum Corporation of China that you should be aware of before investing here.

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.

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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.