Is Grupo Aeroportuario del Sureste S. A. B. de C. V (BMV:ASURB) A Risky Investment?

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. We can see that Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, 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?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Grupo Aeroportuario del Sureste S. A. B. de C. V had Mex$16.1b of debt, an increase on Mex$14.1b, over one year. However, because it has a cash reserve of Mex$13.9b, its net debt is less, at about Mex$2.18b.

A Look At Grupo Aeroportuario del Sureste S. A. B. de C. V's Liabilities

According to the last reported balance sheet, Grupo Aeroportuario del Sureste S. A. B. de C. V had liabilities of Mex$4.90b due within 12 months, and liabilities of Mex$17.5b due beyond 12 months. Offsetting this, it had Mex$13.9b in cash and Mex$3.97b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$4.55b.

Since publicly traded Grupo Aeroportuario del Sureste S. A. B. de C. V shares are worth a total of Mex$140.3b, 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.

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). 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 has a low net debt to EBITDA ratio of only 0.14. And its EBIT easily covers its interest expense, being 31.0 times the size. So we're pretty relaxed about its super-conservative use of debt. On top of that, Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 95% 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. 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 63% 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 that's just the beginning of the good news since its EBIT growth rate is also very heartening. 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. It looks Grupo Aeroportuario del Sureste S. A. B. de C. V has no trouble standing on its own two feet, and it has no reason to fear its lenders. To our minds it has a healthy happy 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.