These 4 Measures Indicate That Liaoning Port (HKG:2880) Is Using Debt Safely

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Liaoning Port Co., Ltd. (HKG:2880) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Liaoning Port's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Liaoning Port had CN¥5.76b of debt, an increase on CN¥4.18b, over one year. However, it also had CN¥5.25b in cash, and so its net debt is CN¥507.7m.

How Healthy Is Liaoning Port's Balance Sheet?

The latest balance sheet data shows that Liaoning Port had liabilities of CN¥3.11b due within a year, and liabilities of CN¥10.9b falling due after that. Offsetting these obligations, it had cash of CN¥5.25b as well as receivables valued at CN¥3.24b due within 12 months. So it has liabilities totalling CN¥5.47b more than its cash and near-term receivables, combined.

Of course, Liaoning Port has a market capitalization of CN¥35.6b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Liaoning Port has virtually no net debt, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Liaoning Port

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Liaoning Port's net debt is only 0.11 times its EBITDA. And its EBIT easily covers its interest expense, being 27.9 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Also positive, Liaoning Port grew its EBIT by 21% in the last year, and that should make it 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 Liaoning Port'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Liaoning Port 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

Liaoning Port's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! We would also note that Infrastructure industry companies like Liaoning Port commonly do use debt without problems. We think Liaoning Port is no more beholden to its lenders, than the birds are to birdwatchers. For investing nerds like us its balance sheet is almost charming. 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. To that end, you should learn about the 2 warning signs we've spotted with Liaoning Port (including 1 which is a bit concerning) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.