Is Kimberly-Clark (NYSE:KMB) Using Too Much Debt?

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Kimberly-Clark Corporation (NYSE:KMB) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kimberly-Clark

What Is Kimberly-Clark's Debt?

The image below, which you can click on for greater detail, shows that Kimberly-Clark had debt of US$7.48b at the end of September 2024, a reduction from US$8.30b over a year. However, because it has a cash reserve of US$1.11b, its net debt is less, at about US$6.37b.

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NYSE:KMB Debt to Equity History December 29th 2024

A Look At Kimberly-Clark's Liabilities

We can see from the most recent balance sheet that Kimberly-Clark had liabilities of US$7.07b falling due within a year, and liabilities of US$8.66b due beyond that. Offsetting these obligations, it had cash of US$1.11b as well as receivables valued at US$2.23b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$12.4b.

Kimberly-Clark has a very large market capitalization of US$44.0b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without 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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).