Does Haw Par (SGX:H02) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that Haw Par Corporation Limited (SGX:H02) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Haw Par's Net Debt?

The image below, which you can click on for greater detail, shows that Haw Par had debt of S$34.0m at the end of June 2025, a reduction from S$36.3m over a year. However, it does have S$699.5m in cash offsetting this, leading to net cash of S$665.5m.

How Strong Is Haw Par's Balance Sheet?

We can see from the most recent balance sheet that Haw Par had liabilities of S$124.3m falling due within a year, and liabilities of S$879.0k due beyond that. Offsetting these obligations, it had cash of S$699.5m as well as receivables valued at S$50.9m due within 12 months. So it can boast S$625.2m more liquid assets than total liabilities.

This excess liquidity suggests that Haw Par is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Haw Par boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Haw Par

On the other hand, Haw Par saw its EBIT drop by 2.4% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. When analysing debt levels, the balance sheet is the obvious place to start. But it is Haw Par'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Haw Par 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. Over the most recent three years, Haw Par recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Haw Par has S$665.5m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of S$62m, being 76% of its EBIT. So we don't think Haw Par's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Haw Par , and understanding them should be part of your investment process.

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.