Auditors Have Doubts About International Consolidated Airlines Group (LON:IAG)

Unfortunately for shareholders, when International Consolidated Airlines Group, S.A. (LON:IAG) reported results for the period to December 2021, its auditors, KPMG LLP - Klynveld Peat Marwick Goerdeler, expressed uncertainty about whether it can continue as a going concern. It is therefore fair to assume that, based on those financials, the company should strengthen its balance sheet in the short term, perhaps by issuing shares.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

Check out our latest analysis for International Consolidated Airlines Group

What Is International Consolidated Airlines Group's Debt?

The image below, which you can click on for greater detail, shows that at December 2021 International Consolidated Airlines Group had debt of €9.97b, up from €5.66b in one year. However, it does have €7.91b in cash offsetting this, leading to net debt of about €2.07b.

How Healthy Is International Consolidated Airlines Group's Balance Sheet?

We can see from the most recent balance sheet that International Consolidated Airlines Group had liabilities of €13.3b falling due within a year, and liabilities of €20.3b due beyond that. On the other hand, it had cash of €7.91b and €947.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €24.7b.

This deficit casts a shadow over the €7.42b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, International Consolidated Airlines Group would probably need a major re-capitalization if its creditors were to demand repayment. 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 International Consolidated Airlines Group'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.

In the last year International Consolidated Airlines Group wasn't profitable at an EBIT level, but managed to grow its revenue by 8.3%, to €8.5b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, International Consolidated Airlines Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €2.9b at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized €885m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for International Consolidated Airlines Group (1 is significant!) that you should be aware of before investing here.

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.