Grupo Mexicano de Desarrollo (BMV:GMD) Has A Pretty Healthy Balance Sheet

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.' 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 Grupo Mexicano de Desarrollo, S.A.B. (BMV:GMD) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Grupo Mexicano de Desarrollo's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Grupo Mexicano de Desarrollo had debt of Mex$1.07b, up from Mex$1.01b in one year. However, its balance sheet shows it holds Mex$1.71b in cash, so it actually has Mex$632.7m net cash.

A Look At Grupo Mexicano de Desarrollo's Liabilities

Zooming in on the latest balance sheet data, we can see that Grupo Mexicano de Desarrollo had liabilities of Mex$1.56b due within 12 months and liabilities of Mex$1.99b due beyond that. Offsetting these obligations, it had cash of Mex$1.71b as well as receivables valued at Mex$1.15b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$701.1m.

Grupo Mexicano de Desarrollo has a market capitalization of Mex$1.28b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Grupo Mexicano de Desarrollo boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Grupo Mexicano de Desarrollo

On the other hand, Grupo Mexicano de Desarrollo saw its EBIT drop by 5.1% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Grupo Mexicano de Desarrollo's earnings that will influence how the balance sheet holds up in the future. 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. While Grupo Mexicano de Desarrollo has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Grupo Mexicano de Desarrollo's free cash flow amounted to 46% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While Grupo Mexicano de Desarrollo does have more liabilities than liquid assets, it also has net cash of Mex$632.7m. So we are not troubled with Grupo Mexicano de Desarrollo's debt use. 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. To that end, you should learn about the 3 warning signs we've spotted with Grupo Mexicano de Desarrollo (including 1 which is potentially serious) .

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.