Is Motiva Infraestrutura de Mobilidade (BVMF:MOTV3) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Motiva Infraestrutura de Mobilidade S.A. (BVMF:MOTV3) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Motiva Infraestrutura de Mobilidade's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Motiva Infraestrutura de Mobilidade had R$37.9b of debt, an increase on R$32.5b, over one year. However, it also had R$6.27b in cash, and so its net debt is R$31.6b.

How Strong Is Motiva Infraestrutura de Mobilidade's Balance Sheet?

We can see from the most recent balance sheet that Motiva Infraestrutura de Mobilidade had liabilities of R$5.67b falling due within a year, and liabilities of R$42.4b due beyond that. Offsetting this, it had R$6.27b in cash and R$2.80b in receivables that were due within 12 months. So it has liabilities totalling R$39.0b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of R$27.3b, we think shareholders really should watch Motiva Infraestrutura de Mobilidade's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.

Check out our latest analysis for Motiva Infraestrutura de Mobilidade

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its 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).

Motiva Infraestrutura de Mobilidade's debt is 4.4 times its EBITDA, and its EBIT cover its interest expense 3.3 times over. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. Notably, Motiva Infraestrutura de Mobilidade's EBIT was pretty flat over the last year, which isn't ideal given the debt load. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Motiva Infraestrutura de Mobilidade'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Motiva Infraestrutura de Mobilidade reported free cash flow worth 16% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Our View

We'd go so far as to say Motiva Infraestrutura de Mobilidade's level of total liabilities was disappointing. Having said that, its ability to grow its EBIT isn't such a worry. We should also note that Infrastructure industry companies like Motiva Infraestrutura de Mobilidade commonly do use debt without problems. Overall, it seems to us that Motiva Infraestrutura de Mobilidade's balance sheet is really quite a risk to the business. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. For example, we've discovered 1 warning sign for Motiva Infraestrutura de Mobilidade that you should be aware of before investing here.

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.