Asia Cement (China) Holdings (HKG:743) Has A Rock Solid Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Asia Cement (China) Holdings Corporation (HKG:743) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Asia Cement (China) Holdings's Debt?

As you can see below, Asia Cement (China) Holdings had CN¥1.11b of debt at March 2025, down from CN¥1.61b a year prior. But it also has CN¥9.02b in cash to offset that, meaning it has CN¥7.91b net cash.

A Look At Asia Cement (China) Holdings' Liabilities

The latest balance sheet data shows that Asia Cement (China) Holdings had liabilities of CN¥1.83b due within a year, and liabilities of CN¥782.1m falling due after that. Offsetting this, it had CN¥9.02b in cash and CN¥964.7m in receivables that were due within 12 months. So it actually has CN¥7.37b more liquid assets than total liabilities.

This surplus liquidity suggests that Asia Cement (China) Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Asia Cement (China) Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Asia Cement (China) Holdings

But the other side of the story is that Asia Cement (China) Holdings saw its EBIT decline by 9.8% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Asia Cement (China) Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Asia Cement (China) 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, Asia Cement (China) Holdings actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, the bottom line is that Asia Cement (China) Holdings has net cash of CN¥7.91b and plenty of liquid assets. And it impressed us with free cash flow of CN¥126m, being 310% of its EBIT. So we don't think Asia Cement (China) Holdings's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Asia Cement (China) Holdings 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.

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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.