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. Importantly, The AES Corporation (NYSE:AES) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.
See our latest analysis for AES
What Is AES's Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2022 AES had US$21.4b of debt, an increase on US$20.0b, over one year. On the flip side, it has US$1.67b in cash leading to net debt of about US$19.7b.
NYSE:AES Debt to Equity History August 9th 2022
A Look At AES' Liabilities
According to the last reported balance sheet, AES had liabilities of US$5.99b due within 12 months, and liabilities of US$25.2b due beyond 12 months. On the other hand, it had cash of US$1.67b and US$1.77b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$27.8b.
The deficiency here weighs heavily on the US$15.9b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, AES would likely require a major re-capitalisation if it had to pay its creditors today.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
With a net debt to EBITDA ratio of 5.9, it's fair to say AES does have a significant amount of debt. But the good news is that it boasts fairly comforting interest cover of 3.3 times, suggesting it can responsibly service its obligations. Worse, AES's EBIT was down 21% over the last year. If earnings keep going like that over the long term, it has a snowball's chance in hell of paying off that debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AES'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 always check how much of that EBIT is translated into free cash flow. Over the last three years, AES recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.
Our View
To be frank both AES's EBIT growth rate and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. And furthermore, its conversion of EBIT to free cash flow also fails to instill confidence. Considering all the factors previously mentioned, we think that AES really is carrying too much debt. To us, that makes the stock rather risky, like walking through a dog park with your eyes closed. But some investors may feel differently. 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. To that end, you should be aware of the 2 warning signs we've spotted with AES .
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.
一些人说,作为投资者,考虑风险的最佳方式是波动性,而不是债务,但巴菲特曾说过一句名言:波动性远非风险的同义词。因此,当你评估一家公司的风险有多大时,聪明的投资者似乎知道债务--通常涉及破产--是一个非常重要的因素。重要的是美国国家航空航天局(纽约证券交易所代码:AES)确实背负着债务。但这笔债务对股东来说是一个担忧吗?
为什么债务会带来风险?
债务帮助企业,直到企业难以偿还债务,无论是用新资本还是用自由现金流。最终,如果公司不能履行其偿还债务的法定义务,股东可能会一无所有地离开。尽管这并不常见,但我们确实经常看到负债累累的公司永久性地稀释股东的权益,因为贷款人迫使他们以令人沮丧的价格筹集资金。然而,通过取代稀释,对于需要资本投资于高回报率增长的企业来说,债务可以成为一个非常好的工具。在考虑一家公司的债务水平时,第一步是同时考虑其现金和债务。
查看我们对AES的最新分析
爱依斯的债务是什么?
您可以点击下图查看历史数字,但它显示,截至2022年6月,AES的债务为214亿美元,比一年前增加了200亿美元。另一方面,它拥有16.7亿美元的现金,导致净债务约为197亿美元。
纽约证券交易所:AES债转股历史2022年8月9日
浅谈美国航空公司的负债
根据最新报告的资产负债表,AES有59.9亿美元的负债在12个月内到期,252亿美元的负债在12个月后到期。另一方面,它有16.7亿美元的现金和17.7亿美元的应收账款在一年内到期。因此,其负债比现金和(近期)应收账款之和高出278亿美元。
这一不足给这家市值159亿美元的公司本身带来了沉重的负担,就像一个孩子在一个装满书籍、运动装备和小号的巨大背包的重压下挣扎一样。因此,我们肯定认为股东需要密切关注这一事件。毕竟,如果aes今天不得不偿还债权人的债务,它很可能需要进行一次大规模的资本重组。
为了评估一家公司的债务相对于它的收益,我们计算它的净债务除以它的利息、税项、折旧和摊销前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆盖)。这样,我们既考虑了债务的绝对量,也考虑了为其支付的利率。
在净债务与EBITDA之比为5.9的情况下,公平地说,AES确实有大量债务。但好消息是,它拥有相当令人欣慰的3.3倍的利息覆盖率,这表明它可以负责任地履行自己的义务。更糟糕的是,爱依斯的息税前利润比去年下降了21%。如果长期盈利保持这样的水平,它在地狱里偿还债务的机会就像滚雪球一样渺茫。当你分析债务时,资产负债表显然是你关注的领域。但未来的收益将决定AES未来维持健康资产负债表的能力,这是最重要的。因此,如果你想看看专业人士的想法,你可能会发现这份关于分析师利润预测的免费报告很有趣。
最后,尽管税务人员可能喜欢会计利润,但贷款人只接受冷硬现金。因此,我们总是检查EBIT中有多少转化为自由现金流。在过去三年中,AES的自由现金流总计为负。在自由现金流为负的公司手中,债务通常更昂贵,风险也几乎总是更高。股东们应该希望情况有所改善。
我们的观点
坦率地说,AES的息税前利润增长率和保持在总负债之上的过往记录都让我们对其债务水平感到相当不安。此外,它将息税前利润转换为自由现金流也未能灌输信心。考虑到前面提到的所有因素,我们认为AES确实背负了太多的债务。对我们来说,这使得这只股票相当冒险,就像闭着眼睛走过狗公园一样。但一些投资者可能会有不同的感受。在分析债务水平时,资产负债表显然是一个起点。但归根结底,每家公司都可能包含存在于资产负债表之外的风险。为此,您应该意识到2个警告标志我们已经用俄歇电子能谱发现了。
如果你有兴趣投资于可以在没有债务负担的情况下增长利润的企业,那么看看这个免费资产负债表上有净现金的成长型企业名单。
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本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。