Does A.P. Møller - Mærsk (CPH:MAERSK B) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that A.P. Møller - Mærsk A/S (CPH:MAERSK B) does use debt in its business. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does A.P. Møller - Mærsk Carry?

As you can see below, at the end of December 2024, A.P. Møller - Mærsk had US$5.07b of debt, up from US$4.37b a year ago. Click the image for more detail. However, it does have US$24.0b in cash offsetting this, leading to net cash of US$19.0b.

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

According to the last reported balance sheet, A.P. Møller - Mærsk had liabilities of US$13.9b due within 12 months, and liabilities of US$15.8b due beyond 12 months. Offsetting this, it had US$24.0b in cash and US$7.82b in receivables that were due within 12 months. So it can boast US$2.11b more liquid assets than total liabilities.

This short term liquidity is a sign that A.P. Møller - Mærsk could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, A.P. Møller - Mærsk boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for A.P. Møller - Mærsk

On top of that, A.P. Møller - Mærsk grew its EBIT by 76% over the last twelve months, and that growth will make it easier to handle its 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 A.P. Møller - Mærsk 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, 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. Over the last three years, A.P. Møller - Mærsk actually produced more free cash flow than EBIT. 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$19.0b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 108% of that EBIT to free cash flow, bringing in US$7.2b. So we don't think A.P. Møller - Mærsk's use of debt 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. Be aware that A.P. Møller - Mærsk is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.