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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Budweiser Brewing Company APAC Limited (HKG:1876) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Budweiser Brewing Company APAC

How Much Debt Does Budweiser Brewing Company APAC Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Budweiser Brewing Company APAC had US$306.0m of debt, an increase on US$245.0m, over one year. But on the other hand it also has US$2.41b in cash, leading to a US$2.10b net cash position.

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

According to the last reported balance sheet, Budweiser Brewing Company APAC had liabilities of US$4.44b due within 12 months, and liabilities of US$695.0m due beyond 12 months. On the other hand, it had cash of US$2.41b and US$774.0m worth of receivables due within a year. So it has liabilities totalling US$1.95b more than its cash and near-term receivables, combined.

Of course, Budweiser Brewing Company APAC has a titanic market capitalization of US$25.8b, 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.

But the other side of the story is that Budweiser Brewing Company APAC saw its EBIT decline by 9.1% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Budweiser Brewing Company APAC 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. Over the last three years, Budweiser Brewing Company APAC recorded free cash flow worth a fulsome 88% 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

We could understand if investors are concerned about Budweiser Brewing Company APAC's liabilities, but we can be reassured by the fact it has has net cash of US$2.10b. The cherry on top was that in converted 88% of that EBIT to free cash flow, bringing in US$1.2b. 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.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.