Does Airbus (EPA:AIR) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Airbus SE (EPA:AIR) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Airbus

What Is Airbus's Debt?

As you can see below, Airbus had €11.4b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has €12.8b in cash to offset that, meaning it has €1.40b net cash.

How Strong Is Airbus' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Airbus had liabilities of €57.7b due within 12 months and liabilities of €47.3b due beyond that. On the other hand, it had cash of €12.8b and €9.97b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €82.2b.

This deficit is considerable relative to its very significant market capitalization of €131.9b, so it does suggest shareholders should keep an eye on Airbus' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Airbus boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Airbus saw its EBIT drop by 5.1% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Airbus'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Airbus may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Airbus's free cash flow amounted to 48% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While Airbus does have more liabilities than liquid assets, it also has net cash of €1.40b. So we don't have any problem with Airbus's use of debt. We'd be motivated to research the stock further if we found out that Airbus insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.