Kroger (NYSE:KR) Has A Pretty Healthy Balance Sheet
Kroger (NYSE:KR) Has A Pretty Healthy Balance Sheet
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that The Kroger Co. (NYSE:KR) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Kroger
What Is Kroger's Debt?
You can click the graphic below for the historical numbers, but it shows that as of November 2022 Kroger had US$13.2b of debt, an increase on US$12.2b, over one year. However, it does have US$916.0m in cash offsetting this, leading to net debt of about US$12.3b.
NYSE:KR Debt to Equity History December 8th 2022How Strong Is Kroger's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Kroger had liabilities of US$17.7b due within 12 months and liabilities of US$22.3b due beyond that. Offsetting this, it had US$916.0m in cash and US$2.02b in receivables that were due within 12 months. So its liabilities total US$37.1b more than the combination of its cash and short-term receivables.
Given this deficit is actually higher than the company's massive market capitalization of US$33.6b, we think shareholders really should watch Kroger's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution.
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
With a debt to EBITDA ratio of 1.6, Kroger uses debt artfully but responsibly. And the alluring interest cover (EBIT of 8.2 times interest expense) certainly does not do anything to dispel this impression. On top of that, Kroger grew its EBIT by 72% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kroger can strengthen its balance sheet over time. 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 it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, Kroger produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Our View
Both Kroger's ability to to grow its EBIT and its conversion of EBIT to free cash flow gave us comfort that it can handle its debt. In contrast, our confidence was undermined by its apparent struggle to handle its total liabilities. Considering this range of data points, we think Kroger is in a good position to manage its debt levels. Having said that, the load is sufficiently heavy that we would recommend any shareholders keep a close eye on it. 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. For example, we've discovered 3 warning signs for Kroger that you should be aware of before investing here.
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.
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.
馬克斯説得很好,他不是擔心股價波動,而是我擔心的是永久虧損的可能性……我認識的每個實際投資者都擔心。因此,當你評估一家公司的風險有多大時,聰明的投資者似乎知道債務--通常涉及破產--是一個非常重要的因素。我們可以看到克羅格公司。(紐約證券交易所代碼:KR)確實在其業務中使用債務。但股東是否應該擔心它的債務使用情況?
什麼時候債務是個問題?
債務幫助企業,直到企業難以償還債務,無論是用新資本還是用自由現金流。在最糟糕的情況下,如果一家公司無法償還債權人的債務,它可能會破產。然而,更常見(但代價仍然高昂)的情況是,一家公司必須以極低的價格發行股票,永久性地稀釋股東的股份,只是為了支撐其資產負債表。當然,許多公司利用債務為增長提供資金,沒有任何負面後果。當考慮一家企業使用了多少債務時,首先要做的是把現金和債務放在一起看。
查看我們對克羅格的最新分析
克羅格的債務是什麼?
你可以點擊下圖查看歷史數字,但它顯示,截至2022年11月,克羅格的債務為132億美元,比一年前增加了122億美元。然而,它確實有9.16億美元的現金來抵消這一點,導致淨債務約為123億美元。
紐約證券交易所:KR債轉股歷史2022年12月8日克羅格的資產負債表有多強勁?
放大最新的資產負債表數據,我們可以看到,克羅格有177億美元的負債在12個月內到期,還有223億美元的負債在12個月後到期。作為抵消,它有9.16億美元的現金和20.2億美元的應收賬款在12個月內到期。因此,其負債總額為371億美元,超過了現金和短期應收賬款的總和。
鑑於這一赤字實際上高於該公司336億美元的龐大市值,我們認為股東們真的應該關注克羅格的債務水平,就像父母第一次看孩子騎車一樣。在該公司不得不迅速清理其資產負債表的情況下,股東似乎可能會遭受廣泛的稀釋。
為了評估一家公司的債務相對於它的收益,我們計算它的淨債務除以它的利息、税項、折舊和攤銷前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆蓋)。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
由於債務與EBITDA的比率為1.6,克羅格巧妙地但負責任地使用債務。而誘人的利息覆蓋(息税前利潤是利息支出的8.2倍)肯定會不做任何事情來消除這種印象。最重要的是,克羅格在過去12個月中息税前利潤增長了72%,這一增長將使其更容易處理債務。在分析債務水平時,資產負債表顯然是一個起點。但最終,該業務未來的盈利能力將決定克羅格能否隨着時間的推移加強其資產負債表。因此,如果你想看看專業人士的想法,你可能會發現這份關於分析師利潤預測的免費報告很有趣。
最後,儘管税務人員可能喜歡會計利潤,但貸款人只接受冷硬現金。因此,有必要檢查這筆息税前利潤中有多少是由自由現金流支持的。在過去的三年裏,克羅格產生了強勁的自由現金流,相當於其息税前利潤的77%,這與我們預期的差不多。這種自由現金流使公司在適當的時候處於償還債務的有利地位。
我們的觀點
克羅格增長息税前利潤的能力以及將息税前利潤轉換為自由現金流的能力都讓我們感到欣慰,因為它可以處理債務。相比之下,我們的信心因其明顯難以處理其全部負債而受到損害。考慮到這一範圍的數據點,我們認為克羅格處於管理其債務水平的有利地位。話雖如此,這筆負擔足夠沉重,我們建議任何股東都要密切關注。在分析債務水平時,資產負債表顯然是一個起點。但歸根結底,每家公司都可能包含存在於資產負債表之外的風險。例如,我們發現克羅格的3個警告信號在這裏投資之前你應該意識到這一點。
總而言之,有時候專注於甚至不需要債務的公司會更容易。讀者可以訪問淨債務為零的成長型股票列表100%免費,現在。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。
譯文內容由第三人軟體翻譯。
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