These 4 Measures Indicate That China Infrastructure & Logistics Group (HKG:1719) Is Using Debt Extensively

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, China Infrastructure & Logistics Group Ltd. (HKG:1719) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 China Infrastructure & Logistics Group Carry?

As you can see below, China Infrastructure & Logistics Group had HK$232.9m of debt at June 2025, down from HK$316.6m a year prior. However, it also had HK$38.4m in cash, and so its net debt is HK$194.5m.

How Healthy Is China Infrastructure & Logistics Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that China Infrastructure & Logistics Group had liabilities of HK$307.4m due within 12 months and liabilities of HK$184.8m due beyond that. Offsetting these obligations, it had cash of HK$38.4m as well as receivables valued at HK$109.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$344.1m.

This is a mountain of leverage relative to its market capitalization of HK$526.1m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry.

See our latest analysis for China Infrastructure & Logistics Group

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Weak interest cover of 0.92 times and a disturbingly high net debt to EBITDA ratio of 6.2 hit our confidence in China Infrastructure & Logistics Group like a one-two punch to the gut. The debt burden here is substantial. Another concern for investors might be that China Infrastructure & Logistics Group's EBIT fell 12% in the last year. If things keep going like that, handling the debt will about as easy as bundling an angry house cat into its travel box. There's no doubt that we learn most about debt from the balance sheet. But it is China Infrastructure & Logistics Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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, China Infrastructure & Logistics Group actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

China Infrastructure & Logistics Group's interest cover and net debt to EBITDA definitely weigh on it, in our esteem. But the good news is it seems to be able to convert EBIT to free cash flow with ease. It's also worth noting that China Infrastructure & Logistics Group is in the Infrastructure industry, which is often considered to be quite defensive. When we consider all the factors discussed, it seems to us that China Infrastructure & Logistics Group is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for China Infrastructure & Logistics Group (1 can't be ignored!) that you should be aware of before investing here.

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.