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.' 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. We note that Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 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 Net Debt?

As you can see below, Grupo Aeroportuario del Sureste S. A. B. de C. V had Mex$13.5b of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have Mex$15.1b in cash offsetting this, leading to net cash of Mex$1.59b.

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

The latest balance sheet data shows that Grupo Aeroportuario del Sureste S. A. B. de C. V had liabilities of Mex$5.60b due within a year, and liabilities of Mex$14.7b falling due after that. Offsetting this, it had Mex$15.1b in cash and Mex$4.64b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$515.2m.

Having regard to Grupo Aeroportuario del Sureste S. A. B. de C. V's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the Mex$145.0b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Grupo Aeroportuario del Sureste S. A. B. de C. V also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 40% over the last twelve months, and that growth will make it easier to handle its debt. 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 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Grupo Aeroportuario del Sureste S. A. B. de C. V has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Grupo Aeroportuario del Sureste S. A. B. de C. V produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Grupo Aeroportuario del Sureste S. A. B. de C. V has Mex$1.59b in net cash. And it impressed us with its EBIT growth of 40% over the last year. So we don't think Grupo Aeroportuario del Sureste S. A. B. de C. V's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. 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 Grupo Aeroportuario del Sureste S. A. B. de C. V .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.