ALPEK. of (BMV: ALPEKA) seems to use debt quite wisely
Warren Buffett said: “Volatility is far from synonymous with risk”. 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. We can see that ALPEK, SAB de CV (BMV: ALPEKA) uses debt in its activity. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for ALPEK. of
How much debt is ALPEK. by Carry?
The image below, which you can click for more details, shows that ALPEK. de had a debt of M $ 32.1 billion at the end of March 2021, down from M $ 43.0 billion year on year. However, he also had Mexican $ 12.0 billion in cash, so his net debt is Mex $ 20.1 billion.
How strong is ALPEK. the record of?
The latest balance sheet data shows that ALPEK. de had a liability of Mex 26.9 billion maturing within one year and a liability of Mex 41.3 billion maturing thereafter. On the other hand, it had a cash position of 12.0 billion Mex and 20.1 billion Mex in receivables due within one year. Its liabilities therefore total Mex $ 36.0 billion more than the combination of its cash and short-term receivables.
This deficit is substantial compared to its market capitalization of 49.6 billion Mexican dollars, so he suggests shareholders keep an eye on ALPEK. of the use of debt. This suggests that shareholders would be heavily diluted if the company needed to consolidate its balance sheet quickly.
In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.
Looking at its net debt over EBITDA of 1.4 and interest coverage of 4.2 times, it looks to us like ALPEK. de probably uses the debt in a fairly reasonable way. But the interest payments are certainly enough to make us think about how affordable his debt is. It should be noted that ALPEK. De’s EBIT has soared like bamboo after the rain, gaining 35% in the past twelve months. This will make it easier to manage your debt. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the future profitability of the company will decide whether ALPEK. de can strengthen its track record over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. The logical step is therefore to examine the proportion of this EBIT that corresponds to the actual free cash flow. Over the past three years, ALPEK. de recorded free cash flow of 72% of its EBIT, which is close to normal given that free cash flow excludes interest and taxes. This free cash flow puts the business in a good position to repay debt, if any.
Our point of view
Fortunately, ALPEK. De’s impressive EBIT growth rate means it has the upper hand over its debt. But, on a darker note, we’re a little concerned with its total liability level. All of these things considered, it looks like ALPEK. de can comfortably manage its current debt level. On the plus side, this leverage can increase returns for shareholders, but the potential downside is more risk of loss, so it’s worth watching the balance sheet. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. Example: we have spotted 3 warning signs for ALPEK. of you need to be aware of it, and one of them is a bit of a concern.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
If you decide to trade ALPEK. de, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
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 any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.