These 4 Measures Indicate That CSN Mineração (BVMF:CMIN3) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, CSN Mineração S.A. (BVMF:CMIN3) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is CSN Mineração's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 CSN Mineração had debt of R$9.27b, up from R$8.90b in one year. But on the other hand it also has R$14.4b in cash, leading to a R$5.10b net cash position.

How Healthy Is CSN Mineração's Balance Sheet?

The latest balance sheet data shows that CSN Mineração had liabilities of R$9.52b due within a year, and liabilities of R$17.2b falling due after that. Offsetting these obligations, it had cash of R$14.4b as well as receivables valued at R$1.56b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by R$10.8b.

This deficit isn't so bad because CSN Mineração is worth R$31.6b, and thus could probably raise enough capital to shore up 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. While it does have liabilities worth noting, CSN Mineração also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for CSN Mineração

In fact CSN Mineração's saving grace is its low debt levels, because its EBIT has tanked 30% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CSN Mineração'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While CSN Mineração has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, CSN Mineração actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although CSN Mineração's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of R$5.10b. The cherry on top was that in converted 112% of that EBIT to free cash flow, bringing in R$5.6b. So we don't have any problem with CSN Mineração's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for CSN Mineração (2 can't be ignored) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.