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 the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out 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?

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$12.2b at the end of June 2024, a reduction from Mex$13.1b over a year. However, it does have Mex$15.0b in cash offsetting this, leading to net cash of Mex$2.84b.

How Healthy 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$5.13b falling due within a year, and liabilities of Mex$14.3b due beyond that. On the other hand, it had cash of Mex$15.0b and Mex$5.06b worth of receivables due within a year. So it actually has Mex$586.3m more liquid assets than total liabilities.

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$167.8b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Grupo Aeroportuario del Sureste S. A. B. de C. V has more cash than debt is arguably a good indication that it can manage its debt safely.

The good news is that Grupo Aeroportuario del Sureste S. A. B. de C. V has increased its EBIT by 7.2% over twelve months, which should ease any concerns about debt repayment. 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'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. 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. Over the most recent three years, Grupo Aeroportuario del Sureste S. A. B. de C. V recorded free cash flow worth 75% 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.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Grupo Aeroportuario del Sureste S. A. B. de C. V has net cash of Mex$2.84b, as well as more liquid assets than liabilities. The cherry on top was that in converted 75% of that EBIT to free cash flow, bringing in Mex$12b. So is Grupo Aeroportuario del Sureste S. A. B. de C. V's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. 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 .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.