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

Warren Buffett famously said, '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 is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 2024 Budweiser Brewing Company APAC had US$283.0m of debt, an increase on US$180.0m, over one year. But it also has US$2.41b in cash to offset that, meaning it has US$2.12b net cash.

A Look At Budweiser Brewing Company APAC's Liabilities

According to the last reported balance sheet, Budweiser Brewing Company APAC had liabilities of US$4.21b due within 12 months, and liabilities of US$684.0m due beyond 12 months. Offsetting these obligations, it had cash of US$2.41b as well as receivables valued at US$819.0m due within 12 months. So it has liabilities totalling US$1.67b more than its cash and near-term receivables, combined.

Since publicly traded Budweiser Brewing Company APAC shares are worth a very impressive total of US$14.4b, 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!

Budweiser Brewing Company APAC's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Budweiser Brewing Company APAC'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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. During the last three years, Budweiser Brewing Company APAC generated free cash flow amounting to a very robust 81% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Budweiser Brewing Company APAC does have more liabilities than liquid assets, it also has net cash of US$2.12b. And it impressed us with free cash flow of US$848m, being 81% of its EBIT. So we don't think Budweiser Brewing Company APAC's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Budweiser Brewing Company APAC , and understanding them should be part of your investment process.

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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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.