Budweiser Brewing Company APAC (HKG:1876) Seems To Use Debt Rather Sparingly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. 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 Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Budweiser Brewing Company APAC

What Is Budweiser Brewing Company APAC's Net Debt?

The image below, which you can click on for greater detail, shows that Budweiser Brewing Company APAC had debt of US$278.0m at the end of June 2021, a reduction from US$789.0m over a year. However, it does have US$1.42b in cash offsetting this, leading to net cash of US$1.14b.

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$4.74b due within 12 months, and liabilities of US$810.0m due beyond 12 months. Offsetting this, it had US$1.42b in cash and US$687.0m in receivables that were due within 12 months. So its liabilities total US$3.44b more than the combination of its cash and short-term receivables.

Given Budweiser Brewing Company APAC has a humongous market capitalization of US$35.6b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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.

On top of that, Budweiser Brewing Company APAC grew its EBIT by 57% over the last twelve months, and that growth will make it easier to handle its 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. During the last three years, Budweiser Brewing Company APAC produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

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$1.14b. And it impressed us with its EBIT growth of 57% over the last year. So is Budweiser Brewing Company APAC's debt a risk? It doesn't seem so to us. 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.

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.