Six Flags Entertainment Corp

FUN

Six Flags Entertainment Corp

@david
• 6 months ago

Six Flags has a lot of debt... | $FUN balance sheet analysis

Understand The Balance Sheet

Buffett once said that he spends more time analyzing the balance sheet than he does studying any other statement.

So how is Six Flags ($FUN) balancing out?

Six Flags has operated with high debt levels in recent years... and their 2024 merger with Cedar only accelerated their debt.

Here's the Balance Sheet from their 2024 annual report

You can see that the line item, "Notes" is where the majority of the debt lives ($3.4B in 2024)

"Notes" means Notes Payable or Senior Notes. These are bonds that the company sells to investors to raise cash. Six Flags issues them instead of relying on banks loans for most of its debt needs.

Cedar Fair has $2.3B in Notes before the merger, so the big pop from 2023 -> 2024 is mostly due to the merger.

I don't like to when Notes dominate the liability side.

Why?

  • These are fixed obligations that don’t care if your attendance dips or if it rains all summer.

  • A capital-intensive, cyclical business funded mostly by debt has no margin of safety.

  • The interest expense on these notes can easily a lot of operating profit.

High Debt means significant interest costs.

They call this out in the annual report. Interest expense was $95M and Operating income was $310M. So their interest cost on their debt is roughly 1/3 of the operating income. Not good.

Interest coverage ratio is a good metric here. Interest coverage ratio = EBIT / Interest expense. (Yeah, EBIT is an alright metric. EBITDA is dumb. Adjusted EBITDA is criminal.).

To calculate EBIT you add Net Income + Interest Expense + Taxes

Six Flags 2024 EBIT = -206M + 234M + 240M. This yields $268M.

Thus, interest coverage ratio for Six Flags is $268M/$95M... 2.82x. Baaaaaad. By contrast, Disney's is ~8.5x.

Buffett favors companies with ample ability to cover interest, often 5× or more coverage.

Retained Earnings... or lack there of

Six Flags’ retained earnings history further diverges from Buffett’s ideal. Buffett likes companies that retain earnings and compound them over time. Six Flags, however, has an accumulated deficit on its balance sheet – essentially negative retained earnings from past losses and payouts.

Their accumulated deficit was $164M in 2024. Bad.

And they've ran this for a long time.

Sentiment: Bearish, although with all the activists swimming around, I do believe the company will divest a park or two to get their debt under control.