Hutchison Port Holdings Trust (SGX:NS8U) Has A Pretty 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, Hutchison Port Holdings Trust (SGX:NS8U) does carry debt. 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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Hutchison Port Holdings Trust Carry?

As you can see below, Hutchison Port Holdings Trust had HK$25.2b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have HK$7.71b in cash offsetting this, leading to net debt of about HK$17.5b.

How Strong Is Hutchison Port Holdings Trust's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hutchison Port Holdings Trust had liabilities of HK$12.0b due within 12 months and liabilities of HK$28.2b due beyond that. On the other hand, it had cash of HK$7.71b and HK$3.75b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$28.7b.

The deficiency here weighs heavily on the HK$14.2b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Hutchison Port Holdings Trust would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for Hutchison Port Holdings Trust

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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Hutchison Port Holdings Trust's debt is 2.8 times its EBITDA, and its EBIT cover its interest expense 5.8 times over. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. Also relevant is that Hutchison Port Holdings Trust has grown its EBIT by a very respectable 29% in the last year, thus enhancing its ability to pay down debt. 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 Hutchison Port Holdings Trust 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Hutchison Port Holdings Trust actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

Based on what we've seen Hutchison Port Holdings Trust is not finding it easy, given its level of total liabilities, but the other factors we considered give us cause to be optimistic. There's no doubt that its ability to to convert EBIT to free cash flow is pretty flash. It's also worth noting that Hutchison Port Holdings Trust is in the Infrastructure industry, which is often considered to be quite defensive. Looking at all this data makes us feel a little cautious about Hutchison Port Holdings Trust's debt levels. While we appreciate debt can enhance returns on equity, we'd suggest that shareholders keep close watch on its debt levels, lest they increase. 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. We've identified 2 warning signs with Hutchison Port Holdings Trust , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.