Is C&A Modas (BVMF:CEAB3) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that C&A Modas S.A. (BVMF:CEAB3) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is C&A Modas's Net Debt?

You can click the graphic below for the historical numbers, but it shows that C&A Modas had R$585.2m of debt in March 2025, down from R$1.69b, one year before. However, its balance sheet shows it holds R$1.52b in cash, so it actually has R$935.6m net cash.

How Strong Is C&A Modas' Balance Sheet?

The latest balance sheet data shows that C&A Modas had liabilities of R$3.35b due within a year, and liabilities of R$2.66b falling due after that. Offsetting this, it had R$1.52b in cash and R$1.61b in receivables that were due within 12 months. So it has liabilities totalling R$2.88b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of R$4.45b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, C&A Modas boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for C&A Modas

Importantly, C&A Modas grew its EBIT by 61% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine C&A Modas'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. C&A Modas 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. Happily for any shareholders, C&A Modas actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While C&A Modas does have more liabilities than liquid assets, it also has net cash of R$935.6m. And it impressed us with free cash flow of R$1.2b, being 182% of its EBIT. So we don't have any problem with C&A Modas's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with C&A Modas , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.