Does CMOC Group (HKG:3993) Have A Healthy Balance Sheet?

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.' 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 can see that CMOC Group Limited (HKG:3993) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is CMOC Group's Debt?

The image below, which you can click on for greater detail, shows that CMOC Group had debt of CN¥33.1b at the end of March 2025, a reduction from CN¥42.9b over a year. However, it does have CN¥41.6b in cash offsetting this, leading to net cash of CN¥8.49b.

A Look At CMOC Group's Liabilities

We can see from the most recent balance sheet that CMOC Group had liabilities of CN¥54.3b falling due within a year, and liabilities of CN¥37.1b due beyond that. Offsetting these obligations, it had cash of CN¥41.6b as well as receivables valued at CN¥8.17b due within 12 months. So it has liabilities totalling CN¥41.6b more than its cash and near-term receivables, combined.

CMOC Group has a very large market capitalization of CN¥152.2b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, CMOC Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for CMOC Group

Even more impressive was the fact that CMOC Group grew its EBIT by 117% over twelve months. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CMOC Group'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While CMOC Group 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. Over the most recent three years, CMOC Group recorded free cash flow worth 70% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While CMOC Group does have more liabilities than liquid assets, it also has net cash of CN¥8.49b. And we liked the look of last year's 117% year-on-year EBIT growth. So is CMOC Group's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that CMOC Group is showing 1 warning sign in our investment analysis , you should know about...

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.