We believe that Aurizon Holdings (ASX:AZJ) is assuming some risk with its debt.

April 10, 2025 10:32 PM AEST | By Team Kalkine Media

We believe that Aurizon Holdings (ASX:AZJ) is assuming some risk with its debt. — Image source: Shutterstock

Understanding Debt's Role

While debt can spur growth, the inability to service it can lead to dire consequences for businesses. At worst, an unmanageable debt can leave shareholders with nothing. More commonly, companies facing debt challenges may opt for equity dilution at lowered share prices. Thus, gauging the debt against cash holdings and obligations gives a clearer financial picture.

Aurizon Holdings' Financial Health

Recent data shows Aurizon Holdings carrying a debt of AU$5.29 billion by December 2024, maintaining last year's level. However, lacking substantial cash reserves implies similar net debt standing. As of April 2025, the company reported liabilities exceeding AU$6.70 billion against liquid assets, surpassing its market cap of AU$5.27 billion.

Debt Ratios and Interest Cover

The debt to EBITDA ratio stands at 3.3, with EBIT covering interest expenses 2.7 times, reflective of manageable yet significant debt levels. A recent dip in EBIT by 2.9% raises questions about future earnings and debt servicing capabilities.

Free Cash Flow and Future Prospects

Encouragingly, the company's consistent conversion of 69% of EBIT to free cash flow over the past three years hints at a strategic approach to debt management. However, concerns remain around its ability to bolster the balance sheet over time.

Overall Assessment

Given the current financial parameters, Aurizon Holdings presents a moderately risky profile due its reliance on debt and limited interest cover. Investors and stakeholders should monitor its financial maneuvers closely, particularly regarding debt management and overall financial health.

While balance sheets provide crucial insights, a comprehensive analysis includes both financial metrics and potential market risks. For those closely following Aurizon Holdings, watching out for any significant shifts in financial forecasts or company announcements will be key.

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.