We Think Grupo Aeroportuario del Sureste S. A. B. de C. V (BMV:ASURB) Can Manage Its Debt With Ease

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. 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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out 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?

As you can see below, Grupo Aeroportuario del Sureste S. A. B. de C. V had Mex$13.4b of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. However, it also had Mex$9.96b in cash, and so its net debt is Mex$3.42b.

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

According to the last reported balance sheet, Grupo Aeroportuario del Sureste S. A. B. de C. V had liabilities of Mex$4.15b due within 12 months, and liabilities of Mex$15.4b due beyond 12 months. Offsetting these obligations, it had cash of Mex$9.96b as well as receivables valued at Mex$3.55b due within 12 months. So it has liabilities totalling Mex$6.07b more than its cash and near-term receivables, combined.

Since publicly traded Grupo Aeroportuario del Sureste S. A. B. de C. V shares are worth a total of Mex$124.4b, 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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Grupo Aeroportuario del Sureste S. A. B. de C. V has a low net debt to EBITDA ratio of only 0.27. And its EBIT easily covers its interest expense, being 18.0 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Better yet, Grupo Aeroportuario del Sureste S. A. B. de C. V grew its EBIT by 402% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. 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'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. So it's worth checking how much of that EBIT is backed by 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 63% 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.

Our View

Happily, Grupo Aeroportuario del Sureste S. A. B. de C. V's impressive interest cover implies it has the upper hand on its debt. 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. Considering this range of factors, it seems to us that Grupo Aeroportuario del Sureste S. A. B. de C. V is quite prudent with its debt, and the risks seem well managed. So the balance sheet looks pretty healthy, to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Grupo Aeroportuario del Sureste S. A. B. de C. V that you should be aware of before investing here.

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.

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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.