Is Allpark Empreendimentos Participações e Serviços (BVMF:ALPK3) A Risky Investment?

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. As with many other companies Allpark Empreendimentos, Participações e Serviços S.A. (BVMF:ALPK3) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Allpark Empreendimentos Participações e Serviços's Net Debt?

As you can see below, at the end of June 2025, Allpark Empreendimentos Participações e Serviços had R$1.13b of debt, up from R$1.08b a year ago. Click the image for more detail. However, because it has a cash reserve of R$323.7m, its net debt is less, at about R$803.8m.

A Look At Allpark Empreendimentos Participações e Serviços' Liabilities

The latest balance sheet data shows that Allpark Empreendimentos Participações e Serviços had liabilities of R$636.9m due within a year, and liabilities of R$1.61b falling due after that. On the other hand, it had cash of R$323.7m and R$215.7m worth of receivables due within a year. So it has liabilities totalling R$1.71b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the R$819.2m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Allpark Empreendimentos Participações e Serviços would probably need a major re-capitalization if its creditors were to demand repayment.

View our latest analysis for Allpark Empreendimentos Participações e Serviços

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). 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).

Even though Allpark Empreendimentos Participações e Serviços's debt is only 1.8, its interest cover is really very low at 1.5. This does suggest the company is paying fairly high interest rates. In any case, it's safe to say the company has meaningful debt. Importantly, Allpark Empreendimentos Participações e Serviços grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Allpark Empreendimentos Participações e Serviços's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Happily for any shareholders, Allpark Empreendimentos Participações e Serviços actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

We feel some trepidation about Allpark Empreendimentos Participações e Serviços's difficulty level of total liabilities, but we've got positives to focus on, too. To wit both its conversion of EBIT to free cash flow and EBIT growth rate were encouraging signs. Looking at all the angles mentioned above, it does seem to us that Allpark Empreendimentos Participações e Serviços is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. Even though Allpark Empreendimentos Participações e Serviços lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.