Grupo Aeroportuario del Sureste S. A. B. de C. V (BMV:ASURB) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 step when considering a company's debt levels is to consider its cash and debt together.

See 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?

The image below, which you can click on for greater detail, shows that Grupo Aeroportuario del Sureste S. A. B. de C. V had debt of Mex$14.1b at the end of September 2021, a reduction from Mex$14.7b over a year. However, it does have Mex$11.0b in cash offsetting this, leading to net debt of about Mex$3.03b.

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

We can see from the most recent balance sheet that Grupo Aeroportuario del Sureste S. A. B. de C. V had liabilities of Mex$6.08b falling due within a year, and liabilities of Mex$15.9b due beyond that. Offsetting these obligations, it had cash of Mex$11.0b as well as receivables valued at Mex$2.05b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$8.92b.

Since publicly traded Grupo Aeroportuario del Sureste S. A. B. de C. V shares are worth a total of Mex$117.4b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.

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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

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 10.5 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. On top of that, Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 72% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Grupo Aeroportuario del Sureste S. A. B. de C. V produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Our View

Happily, Grupo Aeroportuario del Sureste S. A. B. de C. V's impressive EBIT growth rate implies it has the upper hand on its debt. And the good news does not stop there, as its net debt to EBITDA also supports that impression! We would also note that Infrastructure industry companies like Grupo Aeroportuario del Sureste S. A. B. de C. V commonly do use debt without problems. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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.

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.

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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