Grupo Aeroportuario del Sureste S. A. B. de C. V (BMV:ASURB) Has A Rock Solid Balance Sheet

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.' 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. We note that Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

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

How Much Debt Does Grupo Aeroportuario del Sureste S. A. B. de C. V Carry?

You can click the graphic below for the historical numbers, but it shows that Grupo Aeroportuario del Sureste S. A. B. de C. V had Mex$12.4b of debt in June 2022, down from Mex$13.4b, one year before. On the flip side, it has Mex$7.33b in cash leading to net debt of about Mex$5.05b.

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$4.13b due within 12 months and liabilities of Mex$14.5b due beyond that. Offsetting these obligations, it had cash of Mex$7.33b as well as receivables valued at Mex$3.90b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$7.41b.

Given Grupo Aeroportuario del Sureste S. A. B. de C. V has a market capitalization of Mex$132.7b, 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.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Grupo Aeroportuario del Sureste S. A. B. de C. V's net debt is only 0.35 times its EBITDA. And its EBIT easily covers its interest expense, being 30.7 times the size. So we're pretty relaxed about its super-conservative use of debt. Even more impressive was the fact that Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 170% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 Grupo Aeroportuario del Sureste S. A. B. de C. V'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. So it's worth checking how much of that EBIT is backed by free cash flow. Over the most recent three years, Grupo Aeroportuario del Sureste S. A. B. de C. V recorded free cash flow worth 61% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

The good news is that Grupo Aeroportuario del Sureste S. A. B. de C. V's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. 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. Overall, we don't think Grupo Aeroportuario del Sureste S. A. B. de C. V is taking any bad risks, as its debt load seems modest. So we're not worried about the use of a little leverage on the balance sheet. Another factor that would give us confidence in Grupo Aeroportuario del Sureste S. A. B. de C. V would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.