Is Anheuser-Busch InBev SA/NV (EBR:ABI) A Financially Sound Company?
Anheuser-Busch InBev SA/NV (ENXTBR:ABI), a large-cap worth €164.83B, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the key to their continued success lies in its financial health. Let’s take a look at Anheuser-Busch InBev’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ABI here. Check out our latest analysis for Anheuser-Busch InBev
How does ABI’s operating cash flow stack up against its debt?
ABI has sustained its debt level by about US$117.52B over the last 12 months made up of current and long term debt. At this constant level of debt, ABI currently has US$11.78B remaining in cash and short-term investments , ready to deploy into the business. Additionally, ABI has produced cash from operations of US$15.43B during the same period of time, leading to an operating cash to total debt ratio of 13.13%, indicating that ABI’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ABI’s case, it is able to generate 0.13x cash from its debt capital.
Does ABI’s liquid assets cover its short-term commitments?
Looking at ABI’s most recent US$36.21B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$23.96B, leading to a 0.66x current account ratio. which is under the appropriate industry ratio of 3x.
Does ABI face the risk of succumbing to its debt-load?
Considering Anheuser-Busch InBev’s total debt outweighs its equity, the company is deemed highly levered. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. By measuring how many times ABI’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For ABI, the ratio of 3.8x suggests that interest is well-covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes ABI and other large-cap investments thought to be safe.
Next Steps:
ABI’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for ABI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Anheuser-Busch InBev to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ABI’s future growth? Take a look at our free research report of analyst consensus for ABI’s outlook.
Valuation: What is ABI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ABI is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
