Budweiser Brewing Company APAC (HKG:1876) Could Easily Take On More Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Budweiser Brewing Company APAC Limited (HKG:1876) makes use of debt. But should shareholders be worried about its use of debt?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Budweiser Brewing Company APAC

How Much Debt Does Budweiser Brewing Company APAC Carry?

As you can see below, Budweiser Brewing Company APAC had US$177.0m of debt at June 2022, down from US$200.0m a year prior. However, its balance sheet shows it holds US$1.87b in cash, so it actually has US$1.69b net cash.

A Look At Budweiser Brewing Company APAC's Liabilities

The latest balance sheet data shows that Budweiser Brewing Company APAC had liabilities of US$4.35b due within a year, and liabilities of US$754.0m falling due after that. On the other hand, it had cash of US$1.87b and US$652.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.58b.

Since publicly traded Budweiser Brewing Company APAC shares are worth a very impressive total of US$36.6b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Budweiser Brewing Company APAC boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Budweiser Brewing Company APAC grew its EBIT by 6.4% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Budweiser Brewing Company APAC 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 Budweiser Brewing Company APAC 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, Budweiser Brewing Company APAC recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Budweiser Brewing Company APAC has US$1.69b in net cash. And it impressed us with free cash flow of US$1.3b, being 81% of its EBIT. So we don't think Budweiser Brewing Company APAC's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Budweiser Brewing Company APAC, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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.