Does SITC International Holdings (HKG:1308) 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, SITC International Holdings Company Limited (HKG:1308) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is SITC International Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that SITC International Holdings had debt of US$73.6m at the end of June 2025, a reduction from US$173.3m over a year. But on the other hand it also has US$799.0m in cash, leading to a US$725.4m net cash position.

How Strong Is SITC International Holdings' Balance Sheet?

According to the last reported balance sheet, SITC International Holdings had liabilities of US$485.1m due within 12 months, and liabilities of US$268.1m due beyond 12 months. Offsetting this, it had US$799.0m in cash and US$170.4m in receivables that were due within 12 months. So it actually has US$216.1m more liquid assets than total liabilities.

This short term liquidity is a sign that SITC International Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that SITC International Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for SITC International Holdings

Even more impressive was the fact that SITC International Holdings grew its EBIT by 127% over twelve months. That boost will make it even 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 SITC International Holdings'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 SITC International Holdings 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. During the last three years, SITC International Holdings generated free cash flow amounting to a very robust 90% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that SITC International Holdings has net cash of US$725.4m, as well as more liquid assets than liabilities. The cherry on top was that in converted 90% of that EBIT to free cash flow, bringing in US$1.3b. So is SITC International Holdings's debt a risk? It doesn't seem so to us. 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. For example SITC International Holdings has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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.