A.P. Møller - Mærsk (CPH:MAERSK B) Seems To Use Debt Rather Sparingly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, A.P. Møller - Mærsk A/S (CPH:MAERSK B) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. 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, 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.

What Is A.P. Møller - Mærsk's Debt?

As you can see below, A.P. Møller - Mærsk had US$5.19b of debt at March 2025, down from US$5.42b a year prior. But it also has US$22.3b in cash to offset that, meaning it has US$17.1b net cash.

How Strong Is A.P. Møller - Mærsk's Balance Sheet?

We can see from the most recent balance sheet that A.P. Møller - Mærsk had liabilities of US$15.2b falling due within a year, and liabilities of US$15.3b due beyond that. Offsetting this, it had US$22.3b in cash and US$8.72b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that A.P. Møller - Mærsk's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$30.1b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that A.P. Møller - Mærsk has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for A.P. Møller - Mærsk

Even more impressive was the fact that A.P. Møller - Mærsk grew its EBIT by 407% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine A.P. Møller - Mærsk'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While A.P. Møller - Mærsk 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. Happily for any shareholders, A.P. Møller - Mærsk actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case A.P. Møller - Mærsk has US$17.1b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$8.2b, being 113% of its EBIT. So is A.P. Møller - Mærsk's debt a risk? It doesn't seem so to us. 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 A.P. Møller - Mærsk (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.