Does Boa Safra Sementes (BVMF:SOJA3) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Boa Safra Sementes S.A. (BVMF:SOJA3) makes use of debt. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Boa Safra Sementes Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Boa Safra Sementes had R$844.7m of debt, an increase on R$811.0m, over one year. However, it does have R$886.7m in cash offsetting this, leading to net cash of R$42.1m.

How Healthy Is Boa Safra Sementes' Balance Sheet?

We can see from the most recent balance sheet that Boa Safra Sementes had liabilities of R$728.7m falling due within a year, and liabilities of R$782.2m due beyond that. Offsetting this, it had R$886.7m in cash and R$789.0m in receivables that were due within 12 months. So it actually has R$164.9m more liquid assets than total liabilities.

This surplus suggests that Boa Safra Sementes has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Boa Safra Sementes boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Boa Safra Sementes

In fact Boa Safra Sementes's saving grace is its low debt levels, because its EBIT has tanked 42% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Boa Safra Sementes's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Boa Safra Sementes may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Boa Safra Sementes burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Boa Safra Sementes has net cash of R$42.1m, as well as more liquid assets than liabilities. So while Boa Safra Sementes does not have a great balance sheet, it's certainly not too bad. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Boa Safra Sementes , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.