A wise investor takes into consideration the debt level of the firm before investing in it. This is because too much debt can sink a company, and shareholders might get nothing when the entity is liquidated and its assets are shared among creditors.
Obviously, a lot of companies use debt to fund growth and magnify shareholders earnings; after all, it is cheaper to borrow than raise equity capital because debt enjoys a tax shield.
What is BUA Cement net debt?
As you can see below, BUA Cement has a gross or total debt of N412.84 billion as at March 2024, which is about the same as a year before. On the flip side, it has N176.20 billion cash leading to net debt of N236.24 billion.
The latest balance sheet data shows that BUA Cement had liabilities of N379.41 billion due within a year, and liabilities of N463.28 billion falling due after that. Offsetting these obligations, it had cash of N176.20 billion as well as receivables valued at N105.51 billion due within 12 months. So its liabilities total N842.69 billion more than the combination of its cash and short-term receivables.
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.
BUA Cement has enough earnings to cover finance cost as evidenced in an interest coverage ratio of 17.10 times.
As it is, there is no course alarm because the firm can easily pay interest on outstanding debt and there is no threat of going concern.
With projects in the pipeline given the both public and private sector infrastructure spending, BUA Cement future earnings growth are not shrouded in mystery.
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