Grupo Aeroportuario del Sureste S. A. B. de C. V (BMV:ASURB) Has A Rock Solid 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.' 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 Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB) makes use of debt. But the more important question is: how much risk is that debt creating?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Grupo Aeroportuario del Sureste S. A. B. de C. V

What Is Grupo Aeroportuario del Sureste S. A. B. de C. V's Debt?

As you can see below, Grupo Aeroportuario del Sureste S. A. B. de C. V had Mex$13.8b of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. However, it also had Mex$8.77b in cash, and so its net debt is Mex$5.01b.

How Strong Is Grupo Aeroportuario del Sureste S. A. B. de C. V's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Grupo Aeroportuario del Sureste S. A. B. de C. V had liabilities of Mex$3.79b due within 12 months and liabilities of Mex$16.3b due beyond that. Offsetting this, it had Mex$8.77b in cash and Mex$2.66b in receivables that were due within 12 months. So it has liabilities totalling Mex$8.63b more than its cash and near-term receivables, combined.

Given Grupo Aeroportuario del Sureste S. A. B. de C. V has a market capitalization of Mex$133.1b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Grupo Aeroportuario del Sureste S. A. B. de C. V's net debt is only 0.47 times its EBITDA. And its EBIT easily covers its interest expense, being 13.5 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Better yet, Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 178% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Grupo Aeroportuario del Sureste S. A. B. de C. V 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. So we always check how much of that EBIT is translated into free cash flow. Over the most recent three years, Grupo Aeroportuario del Sureste S. A. B. de C. V recorded free cash flow worth 60% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

Grupo Aeroportuario del Sureste S. A. B. de C. V's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its EBIT growth rate also supports that impression! It's also worth noting that Grupo Aeroportuario del Sureste S. A. B. de C. V is in the Infrastructure industry, which is often considered to be quite defensive. Considering this range of factors, it seems to us that Grupo Aeroportuario del Sureste S. A. B. de C. V is quite prudent with its debt, and the risks seem well managed. So the balance sheet looks pretty healthy, to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Grupo Aeroportuario del Sureste S. A. B. de C. V that you should be aware of.

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.