Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Budweiser Brewing Company APAC Limited (HKG:1876) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Budweiser Brewing Company APAC's Debt?
The image below, which you can click on for greater detail, shows that Budweiser Brewing Company APAC had debt of US$94.0m at the end of December 2024, a reduction from US$182.0m over a year. However, it does have US$2.87b in cash offsetting this, leading to net cash of US$2.77b.
A Look At Budweiser Brewing Company APAC's Liabilities
Zooming in on the latest balance sheet data, we can see that Budweiser Brewing Company APAC had liabilities of US$3.93b due within 12 months and liabilities of US$605.0m due beyond that. Offsetting this, it had US$2.87b in cash and US$456.0m in receivables that were due within 12 months. So its liabilities total US$1.22b more than the combination of its cash and short-term receivables.
Since publicly traded Budweiser Brewing Company APAC shares are worth a very impressive total of US$14.5b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Budweiser Brewing Company APAC boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for Budweiser Brewing Company APAC
On the other hand, Budweiser Brewing Company APAC's EBIT dived 16%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Budweiser Brewing Company APAC's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Budweiser Brewing Company APAC 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 last three years, Budweiser Brewing Company APAC recorded free cash flow worth a fulsome 86% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.
Summing Up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Budweiser Brewing Company APAC has US$2.77b in net cash. And it impressed us with free cash flow of US$755m, being 86% of its EBIT. So we are not troubled with Budweiser Brewing Company APAC's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Budweiser Brewing Company APAC , and understanding them should be part of your investment process.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.