Budweiser Brewing Company APAC (HKG:1876) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Budweiser Brewing Company APAC Limited (HKG:1876) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

Check out our latest analysis for Budweiser Brewing Company APAC

What Is Budweiser Brewing Company APAC's Debt?

The image below, which you can click on for greater detail, shows that Budweiser Brewing Company APAC had debt of US$182.0m at the end of December 2020, a reduction from US$313.0m over a year. But it also has US$1.28b in cash to offset that, meaning it has US$1.10b net cash.

How Strong Is Budweiser Brewing Company APAC's Balance Sheet?

We can see from the most recent balance sheet that Budweiser Brewing Company APAC had liabilities of US$4.64b falling due within a year, and liabilities of US$809.0m due beyond that. On the other hand, it had cash of US$1.28b and US$486.0m worth of receivables due within a year. So it has liabilities totalling US$3.68b more than its cash and near-term receivables, combined.

Of course, Budweiser Brewing Company APAC has a titanic market capitalization of US$45.5b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Budweiser Brewing Company APAC also has more cash than debt, so we're pretty confident it can manage its debt safely.

Another good sign is that Budweiser Brewing Company APAC has been able to increase its EBIT by 22% in twelve months, making it easier to pay down 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 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 company can only pay off debt with cold hard cash, not accounting profits. 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. Looking at the most recent three years, Budweiser Brewing Company APAC recorded free cash flow of 43% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying 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$1.10b in net cash. And it impressed us with its EBIT growth of 22% over the last year. So we don't think Budweiser Brewing Company APAC's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Budweiser Brewing Company APAC's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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