These Four Indicators Show That Eagers Automotive (ASX:APE) is Heavily Relying on Debt

2 min read | April 06, 2025 12:31 PM AEST | By Team Kalkine Media

These Four Indicators Show That Eagers Automotive (ASX:APE) is Heavily Relying on Debt

The Role of Debt in Business

Debt serves as a growth catalyst for corporations but can also pose risks when not managed efficiently. If a company like Eagers Automotive cannot meet its debt obligations, it may have to issue new equity at unfavorable prices, diluting existing shareholders. It's vital to analyze both cash reserves and debt to get a holistic view of the company's financial health.

Eagers Automotive's Debt Overview

By the end of 2024, Eagers Automotive reported a debt increase to AU$2.52 billion from AU$1.80 billion the previous year. With cash reserves at AU$183.7 million, the net debt stands at approximately AU$2.33 billion.

Balance Sheet Health

The company faces liabilities totaling AU$3.56 billion more than its cash and receivables, compared to a market capitalization of AU$3.87 billion. This could signal the need for stakeholders to closely monitor how debt influences Eagers Automotive's financial strategies and potential shareholder dilution risks.

Debt and Earnings Analysis

Eagers Automotive's net debt is 4.0 times its EBITDA, while the EBIT covers its interest expenses 2.9 times, suggesting substantial, albeit manageable, debt levels. Though EBIT levels remained stable over the past year, the balance sheet and future earnings will play a significant role in maintaining fiscal soundness.

Cash Flow and Future Implications

Over the last three years, Eagers Automotive converted 49% of its EBIT into free cash flow. While this conversion rate seems below expectations, it highlights the need for careful debt management. The current outlook suggests some risks associated with debt levels, though the ability to generate cash remains promising.

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