China Overseas Property Holdings (HKG:2669) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, '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 China Overseas Property Holdings Limited (HKG:2669) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is China Overseas Property Holdings's Debt?

As you can see below, China Overseas Property Holdings had CN¥50.0m of debt at June 2025, down from CN¥59.5m a year prior. However, its balance sheet shows it holds CN¥5.67b in cash, so it actually has CN¥5.62b net cash.

How Strong Is China Overseas Property Holdings' Balance Sheet?

According to the last reported balance sheet, China Overseas Property Holdings had liabilities of CN¥6.86b due within 12 months, and liabilities of CN¥88.4m due beyond 12 months. Offsetting this, it had CN¥5.67b in cash and CN¥4.29b in receivables that were due within 12 months. So it can boast CN¥3.01b more liquid assets than total liabilities.

It's good to see that China Overseas Property Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that China Overseas Property Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for China Overseas Property Holdings

The good news is that China Overseas Property Holdings has increased its EBIT by 7.8% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine China Overseas Property Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. China Overseas Property 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. During the last three years, China Overseas Property Holdings generated free cash flow amounting to a very robust 80% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that China Overseas Property Holdings has net cash of CN¥5.62b, as well as more liquid assets than liabilities. The cherry on top was that in converted 80% of that EBIT to free cash flow, bringing in CN¥1.2b. So is China Overseas Property Holdings's debt a risk? It doesn't seem so to us. Given China Overseas Property Holdings 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.

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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.