We Think Inversiones Nutravalor (SNSE:NUTRAVALOR) Is Taking Some Risk With Its Debt

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 can see that Inversiones Nutravalor S.A. (SNSE:NUTRAVALOR) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, 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.

What Is Inversiones Nutravalor's Debt?

The chart below, which you can click on for greater detail, shows that Inversiones Nutravalor had US$262.9m in debt in March 2025; about the same as the year before. However, it does have US$70.2m in cash offsetting this, leading to net debt of about US$192.7m.

How Strong Is Inversiones Nutravalor's Balance Sheet?

According to the last reported balance sheet, Inversiones Nutravalor had liabilities of US$332.7m due within 12 months, and liabilities of US$33.6m due beyond 12 months. Offsetting this, it had US$70.2m in cash and US$118.2m in receivables that were due within 12 months. So its liabilities total US$178.0m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$37.3m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Inversiones Nutravalor would probably need a major re-capitalization if its creditors were to demand repayment.

See our latest analysis for Inversiones Nutravalor

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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Weak interest cover of 0.30 times and a disturbingly high net debt to EBITDA ratio of 12.2 hit our confidence in Inversiones Nutravalor like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. However, the silver lining was that Inversiones Nutravalor achieved a positive EBIT of US$1.1m in the last twelve months, an improvement on the prior year's loss. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Inversiones Nutravalor will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. Over the last year, Inversiones Nutravalor actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

To be frank both Inversiones Nutravalor's interest cover and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. We're quite clear that we consider Inversiones Nutravalor to be really rather risky, as a result of its balance sheet health. For this reason we're pretty cautious about the stock, and we think shareholders should keep a close eye on its liquidity. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Inversiones Nutravalor (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.