These 4 Measures Indicate That Qingdao Port International (HKG:6198) Is Using Debt Safely

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, Qingdao Port International Co., Ltd. (HKG:6198) does carry debt. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Qingdao Port International's Net Debt?

As you can see below, at the end of March 2025, Qingdao Port International had CN¥4.32b of debt, up from CN¥2.68b a year ago. Click the image for more detail. But on the other hand it also has CN¥14.9b in cash, leading to a CN¥10.6b net cash position.

How Strong Is Qingdao Port International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Qingdao Port International had liabilities of CN¥9.07b due within 12 months and liabilities of CN¥7.94b due beyond that. Offsetting this, it had CN¥14.9b in cash and CN¥3.68b in receivables that were due within 12 months. So it can boast CN¥1.58b more liquid assets than total liabilities.

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

View our latest analysis for Qingdao Port International

The good news is that Qingdao Port International has increased its EBIT by 5.2% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Qingdao Port International can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Qingdao Port International 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. Over the most recent three years, Qingdao Port International recorded free cash flow worth 65% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Qingdao Port International has CN¥10.6b in net cash and a decent-looking balance sheet. So is Qingdao Port International's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Qingdao Port International that you should be aware of before investing here.

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.