Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Cencora, Inc. (NYSE:COR) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Cencora

What Is Cencora's Debt?

You can click the graphic below for the historical numbers, but it shows that Cencora had US$4.73b of debt in June 2024, down from US$5.02b, one year before. On the flip side, it has US$3.31b in cash leading to net debt of about US$1.42b.

A Look At Cencora's Liabilities

The latest balance sheet data shows that Cencora had liabilities of US$53.0b due within a year, and liabilities of US$12.7b falling due after that. Offsetting these obligations, it had cash of US$3.31b as well as receivables valued at US$24.1b due within 12 months. So it has liabilities totalling US$38.3b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its very significant market capitalization of US$44.8b, so it does suggest shareholders should keep an eye on Cencora's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Cencora's net debt is only 0.35 times its EBITDA. And its EBIT easily covers its interest expense, being 14.8 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Also good is that Cencora grew its EBIT at 16% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Cencora's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.