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

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Las Vegas Sands Corp. (NYSE:LVS) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Las Vegas Sands

How Much Debt Does Las Vegas Sands Carry?

As you can see below, at the end of December 2020, Las Vegas Sands had US$14.0b of debt, up from US$12.5b a year ago. Click the image for more detail. However, it does have US$2.12b in cash offsetting this, leading to net debt of about US$11.9b.

How Strong Is Las Vegas Sands' Balance Sheet?

According to the last reported balance sheet, Las Vegas Sands had liabilities of US$2.31b due within 12 months, and liabilities of US$15.0b due beyond 12 months. Offsetting these obligations, it had cash of US$2.12b as well as receivables valued at US$338.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$14.8b.

While this might seem like a lot, it is not so bad since Las Vegas Sands has a huge market capitalization of US$45.3b, 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 ultimately the future profitability of the business will decide if Las Vegas Sands 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.

In the last year Las Vegas Sands had a loss before interest and tax, and actually shrunk its revenue by 74%, to US$3.6b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Las Vegas Sands's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$1.6b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$2.6b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very 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. For example - Las Vegas Sands has 1 warning sign we think you should be aware of.

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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