We believe that Aena SME (BME: AENA) has a good deal of debt

Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk that worries me … and every investor practices that I know worries “. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Mostly, Aena PME, SA (BME: AENA) bears the debt. But does this debt worry shareholders?

When is debt dangerous?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

See our latest analysis for Aena PME

How much debt does Aena SME have?

As you can see below, at the end of December 2020, Aena SME had a debt of 8.36 billion euros, up from 6.99 billion euros a year ago. Click on the image for more details. However, it has 1.22 billion euros in cash offsetting this, which leads to net debt of around 7.14 billion euros.

BME: AENA History of debt on equity 23 March 2021

How healthy is Aena PME’s balance sheet?

According to the latest published balance sheet, Aena SME had liabilities of 1.78 billion euros within 12 months and liabilities of 7.82 billion euros due beyond 12 months. In compensation for these commitments, he had cash of € 1.22 billion as well as receivables valued at € 894.7 million within 12 months. Its liabilities therefore amount to € 7.48 billion more than the combination of its cash and short-term receivables.

While that might sound like a lot, it’s not that bad as SME Aena has a massive market cap of € 21.2 billion, so it could likely strengthen its balance sheet by raising capital if needed. But we absolutely want to keep our eyes open for indications that its debt is too risky. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future profits, more than anything, that will determine Aena SME’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Over 12 months, Aena SME recorded a loss in EBIT and saw its turnover fall to 2.2 billion euros, a decrease of 51%. To be frank, that doesn’t bode well.

Emptor Warning

While Aena SME’s decline in earnings is about as comforting as a wet hedge, its earnings before interest and taxes (EBIT) can be said to be even less attractive. To be precise, the EBIT loss amounted to 24 million euros. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. However, it doesn’t help that he spent € 356million in cash in the past year. Suffice it to say that we consider the action to be risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. We have identified 1 warning sign with Aena PME , and understanding them should be part of your investment process.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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