Is CAP (SNSE:CAP) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that CAP S.A. (SNSE:CAP) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is CAP's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 CAP had US$1.87b of debt, an increase on US$1.71b, over one year. On the flip side, it has US$330.9m in cash leading to net debt of about US$1.54b.

A Look At CAP's Liabilities

According to the last reported balance sheet, CAP had liabilities of US$939.0m due within 12 months, and liabilities of US$2.22b due beyond 12 months. On the other hand, it had cash of US$330.9m and US$303.0m worth of receivables due within a year. So it has liabilities totalling US$2.52b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$1.25b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, CAP would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if CAP 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 CAP

In the last year CAP wasn't profitable at an EBIT level, but managed to grow its revenue by 3.2%, to US$1.8b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, CAP had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$31m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through US$53m in negative free cash flow over the last year. That means it's on the risky side of things. 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 example - CAP has 1 warning sign we think you should be aware of.

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.