These 4 Measures Indicate That Budweiser Brewing Company APAC (HKG:1876) Is Using Debt Safely

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Budweiser Brewing Company APAC Limited (HKG:1876) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at 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 December 2023 Budweiser Brewing Company APAC had US$331.0m of debt, an increase on US$224.0m, over one year. However, it does have US$3.14b in cash offsetting this, leading to net cash of US$2.81b.

A Look At Budweiser Brewing Company APAC's Liabilities

The latest balance sheet data shows that Budweiser Brewing Company APAC had liabilities of US$4.65b due within a year, and liabilities of US$735.0m falling due after that. Offsetting these obligations, it had cash of US$3.14b as well as receivables valued at US$537.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.71b.

Since publicly traded Budweiser Brewing Company APAC shares are worth a very impressive total of US$15.5b, 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. 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.

Fortunately, Budweiser Brewing Company APAC grew its EBIT by 8.1% in the last year, making that debt load look even more manageable. 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, while the tax-man may adore accounting profits, lenders only accept 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 92% 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 Budweiser Brewing Company APAC does have more liabilities than liquid assets, it also has net cash of US$2.81b. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in US$1.3b. So is Budweiser Brewing Company APAC's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Budweiser Brewing Company APAC .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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