Would Hidrovias do Brasil (BVMF:HBSA3) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Hidrovias do Brasil S.A. (BVMF:HBSA3) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Hidrovias do Brasil Carry?

The image below, which you can click on for greater detail, shows that Hidrovias do Brasil had debt of R$3.47b at the end of June 2025, a reduction from R$4.44b over a year. However, it also had R$1.10b in cash, and so its net debt is R$2.37b.

How Strong Is Hidrovias do Brasil's Balance Sheet?

According to the last reported balance sheet, Hidrovias do Brasil had liabilities of R$956.0m due within 12 months, and liabilities of R$3.72b due beyond 12 months. Offsetting this, it had R$1.10b in cash and R$375.6m in receivables that were due within 12 months. So its liabilities total R$3.20b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of R$4.88b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hidrovias do Brasil can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Hidrovias do Brasil

In the last year Hidrovias do Brasil had a loss before interest and tax, and actually shrunk its revenue by 5.1%, to R$1.6b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Hidrovias do Brasil produced an earnings before interest and tax (EBIT) loss. Indeed, it lost R$58m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of R$341m. So we do think this stock is quite risky. 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 1 warning sign with Hidrovias do Brasil , 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.

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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.