Grupo Aeroportuario del Centro Norte. de (BMV:OMAB) Has A Pretty Healthy Balance Sheet

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.' 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 Centro Norte, S.A.B. de C.V. (BMV:OMAB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Grupo Aeroportuario del Centro Norte. de

How Much Debt Does Grupo Aeroportuario del Centro Norte. de Carry?

The chart below, which you can click on for greater detail, shows that Grupo Aeroportuario del Centro Norte. de had Mex$10.7b in debt in March 2024; about the same as the year before. However, it does have Mex$3.44b in cash offsetting this, leading to net debt of about Mex$7.24b.

How Healthy Is Grupo Aeroportuario del Centro Norte. de's Balance Sheet?

The latest balance sheet data shows that Grupo Aeroportuario del Centro Norte. de had liabilities of Mex$3.00b due within a year, and liabilities of Mex$12.9b falling due after that. On the other hand, it had cash of Mex$3.44b and Mex$1.71b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$10.8b.

Of course, Grupo Aeroportuario del Centro Norte. de has a market capitalization of Mex$59.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). 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).

With net debt sitting at just 0.82 times EBITDA, Grupo Aeroportuario del Centro Norte. de is arguably pretty conservatively geared. And this view is supported by the solid interest coverage, with EBIT coming in at 8.0 times the interest expense over the last year. Another good sign is that Grupo Aeroportuario del Centro Norte. de has been able to increase its EBIT by 23% in twelve months, making it easier to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Grupo Aeroportuario del Centro Norte. de's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. In the last three years, Grupo Aeroportuario del Centro Norte. de's free cash flow amounted to 45% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Our View

The good news is that Grupo Aeroportuario del Centro Norte. de's demonstrated ability to grow its EBIT delights us like a fluffy puppy does a toddler. 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 Centro Norte. de commonly do use debt without problems. Taking all this data into account, it seems to us that Grupo Aeroportuario del Centro Norte. de takes a pretty sensible approach to debt. While that brings some risk, it can also enhance returns for shareholders. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Grupo Aeroportuario del Centro Norte. de is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.

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