Does Budweiser Brewing Company APAC (HKG:1876) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. 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?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Budweiser Brewing Company APAC

How Much Debt Does Budweiser Brewing Company APAC Carry?

As you can see below, at the end of June 2023, Budweiser Brewing Company APAC had US$226.0m of debt, up from US$145.0m a year ago. Click the image for more detail. But it also has US$2.41b in cash to offset that, meaning it has US$2.18b net cash.

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

The latest balance sheet data shows that Budweiser Brewing Company APAC had liabilities of US$4.44b due within a year, and liabilities of US$695.0m falling due after that. Offsetting these obligations, it had cash of US$2.41b as well as receivables valued at US$774.0m due within 12 months. So its liabilities total US$1.95b more than the combination of its cash and short-term receivables.

Since publicly traded Budweiser Brewing Company APAC shares are worth a very impressive total of US$28.8b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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!

But the other side of the story is that Budweiser Brewing Company APAC saw its EBIT decline by 7.2% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 83% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

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$2.18b in net cash. The cherry on top was that in converted 83% of that EBIT to free cash flow, bringing in US$1.1b. 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.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.