Is Fresnillo (LON:FRES) Using Too Much Debt?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Fresnillo plc (LON:FRES) does carry debt. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Fresnillo's Debt?

As you can see below, Fresnillo had US$839.6m of debt at June 2025, down from US$890.3m a year prior. However, its balance sheet shows it holds US$1.82b in cash, so it actually has US$983.3m net cash.

A Look At Fresnillo's Liabilities

The latest balance sheet data shows that Fresnillo had liabilities of US$557.0m due within a year, and liabilities of US$1.17b falling due after that. Offsetting this, it had US$1.82b in cash and US$532.3m in receivables that were due within 12 months. So it actually has US$629.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Fresnillo could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Fresnillo boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Fresnillo

Better yet, Fresnillo grew its EBIT by 180% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Fresnillo'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 company can only pay off debt with cold hard cash, not accounting profits. Fresnillo 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. Over the last three years, Fresnillo recorded free cash flow worth a fulsome 97% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Fresnillo has net cash of US$983.3m, as well as more liquid assets than liabilities. The cherry on top was that in converted 97% of that EBIT to free cash flow, bringing in US$1.6b. So is Fresnillo's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Fresnillo, you may well want to click here to check an interactive graph of its earnings per share history.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.