We Think Københavns Lufthavne (CPH:KBHL) Has A Fair Chunk Of Debt

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 Københavns Lufthavne A/S (CPH:KBHL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Københavns Lufthavne

How Much Debt Does Københavns Lufthavne Carry?

The image below, which you can click on for greater detail, shows that at June 2021 Københavns Lufthavne had debt of kr.10.4b, up from kr.9.10b in one year. Net debt is about the same, since the it doesn't have much cash.

A Look At Københavns Lufthavne's Liabilities

We can see from the most recent balance sheet that Københavns Lufthavne had liabilities of kr.1.07b falling due within a year, and liabilities of kr.11.1b due beyond that. Offsetting this, it had kr.114.3m in cash and kr.187.7m in receivables that were due within 12 months. So it has liabilities totalling kr.11.8b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Københavns Lufthavne has a market capitalization of kr.52.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Københavns Lufthavne'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.

Over 12 months, Københavns Lufthavne made a loss at the EBIT level, and saw its revenue drop to kr.1.1b, which is a fall of 66%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Københavns Lufthavne's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at kr.1.5b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr.1.3b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 - Københavns Lufthavne has 2 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.
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