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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Anglo-Eastern Plantations Plc (LON:AEP) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Anglo-Eastern Plantations
What Is Anglo-Eastern Plantations's Debt?
The image below, which you can click on for greater detail, shows that Anglo-Eastern Plantations had debt of US$2.73m at the end of June 2020, a reduction from US$16.1m over a year. But on the other hand it also has US$91.4m in cash, leading to a US$88.7m net cash position.
How Healthy Is Anglo-Eastern Plantations's Balance Sheet?
The latest balance sheet data shows that Anglo-Eastern Plantations had liabilities of US$25.0m due within a year, and liabilities of US$28.1m falling due after that. Offsetting this, it had US$91.4m in cash and US$56.1m in receivables that were due within 12 months. So it can boast US$94.5m more liquid assets than total liabilities.
This excess liquidity is a great indication that Anglo-Eastern Plantations's balance sheet is just as strong as racists are weak. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Succinctly put, Anglo-Eastern Plantations boasts net cash, so it's fair to say it does not have a heavy debt load!
In addition to that, we're happy to report that Anglo-Eastern Plantations has boosted its EBIT by 86%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Anglo-Eastern Plantations will need earnings to service that debt. 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.