Las Vegas Sands (NYSE:LVS) Is Carrying A Fair Bit Of Debt

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.' 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 Las Vegas Sands Corp. (NYSE:LVS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Las Vegas Sands

What Is Las Vegas Sands's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Las Vegas Sands had US$13.9b of debt, an increase on US$11.9b, over one year. On the flip side, it has US$2.38b in cash leading to net debt of about US$11.5b.

How Healthy Is Las Vegas Sands's Balance Sheet?

According to the last reported balance sheet, Las Vegas Sands had liabilities of US$2.26b due within 12 months, and liabilities of US$14.9b due beyond 12 months. Offsetting these obligations, it had cash of US$2.38b as well as receivables valued at US$382.0m due within 12 months. So it has liabilities totalling US$14.4b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Las Vegas Sands has a huge market capitalization of US$43.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Las Vegas Sands'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.

In the last year Las Vegas Sands had a loss before interest and tax, and actually shrunk its revenue by 56%, to US$6.0b. To be frank that doesn't bode well.

Caveat Emptor

While Las Vegas Sands's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$403m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$1.6b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. Case in point: We've spotted 1 warning sign for Las Vegas Sands you should be aware of.

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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