The harsh reality for United Company RUSAL, International Public Joint-Stock Company (HKG:486) shareholders is that its auditors, TSATR Audit Services LLC, expressed doubts about its ability to continue as a going concern, in its reported results to December 2022. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So current risks on the balance sheet could have a big impact on how shareholders fare from here. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.

View our latest analysis for United Company RUSAL International

How Much Debt Does United Company RUSAL International Carry?

The image below, which you can click on for greater detail, shows that at December 2022 United Company RUSAL International had debt of US$9.46b, up from US$6.73b in one year. On the flip side, it has US$3.29b in cash leading to net debt of about US$6.17b.

How Healthy Is United Company RUSAL International's Balance Sheet?

According to the last reported balance sheet, United Company RUSAL International had liabilities of US$4.59b due within 12 months, and liabilities of US$7.73b due beyond 12 months. On the other hand, it had cash of US$3.29b and US$1.74b worth of receivables due within a year. So it has liabilities totalling US$7.30b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's US$6.60b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

United Company RUSAL International has a debt to EBITDA ratio of 3.1 and its EBIT covered its interest expense 5.1 times. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. Shareholders should be aware that United Company RUSAL International's EBIT was down 28% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. There's no doubt that we learn most about debt from the balance sheet. But it is United Company RUSAL International's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, United Company RUSAL International burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

To be frank both United Company RUSAL International's conversion of EBIT to free cash flow and its track record of (not) growing its EBIT make us rather uncomfortable with its debt levels. Having said that, its ability to cover its interest expense with its EBIT isn't such a worry. Taking into account all the aforementioned factors, it looks like United Company RUSAL International has too much debt. That sort of riskiness is ok for some, but it certainly doesn't float our boat. Some investors may be interested in buying high risk stocks at the right price, but we prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. We prefer to invest in companies that ensure the balance sheet remains healthier than that. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for United Company RUSAL International you should be aware of, and 2 of them make us uncomfortable.

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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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.