We Think Aena S.M.E (BME:AENA) Has A Fair Chunk Of Debt

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.' 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, Aena S.M.E., S.A. (BME:AENA) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Aena S.M.E

How Much Debt Does Aena S.M.E Carry?

As you can see below, at the end of December 2020, Aena S.M.E had €8.36b of debt, up from €6.99b a year ago. Click the image for more detail. However, it does have €1.22b in cash offsetting this, leading to net debt of about €7.14b.

How Healthy Is Aena S.M.E's Balance Sheet?

According to the last reported balance sheet, Aena S.M.E had liabilities of €1.78b due within 12 months, and liabilities of €7.82b due beyond 12 months. Offsetting these obligations, it had cash of €1.22b as well as receivables valued at €894.7m due within 12 months. So its liabilities total €7.48b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Aena S.M.E has a huge market capitalization of €21.2b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Aena S.M.E's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Aena S.M.E made a loss at the EBIT level, and saw its revenue drop to €2.2b, which is a fall of 51%. To be frank that doesn't bode well.

Caveat Emptor

While Aena S.M.E's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €24m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €356m of cash over the last year. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Aena S.M.E , 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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