Does Grupo Comercial Chedraui. de (BMV:CHDRAUIB) Have A Healthy Balance Sheet?

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.' 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 can see that Grupo Comercial Chedraui, S.A.B. de C.V. (BMV:CHDRAUIB) does use debt in its business. But should shareholders be worried about its use of debt?

We check all companies for important risks. See what we found for Grupo Comercial Chedraui. de in our free report.

When Is Debt Dangerous?

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. 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.

How Much Debt Does Grupo Comercial Chedraui. de Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Grupo Comercial Chedraui. de had Mex$11.4b of debt, an increase on Mex$7.87b, over one year. On the flip side, it has Mex$10.8b in cash leading to net debt of about Mex$592.7m.

How Strong Is Grupo Comercial Chedraui. de's Balance Sheet?

The latest balance sheet data shows that Grupo Comercial Chedraui. de had liabilities of Mex$45.7b due within a year, and liabilities of Mex$64.4b falling due after that. Offsetting these obligations, it had cash of Mex$10.8b as well as receivables valued at Mex$5.66b due within 12 months. So it has liabilities totalling Mex$93.7b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of Mex$134.8b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Carrying virtually no net debt, Grupo Comercial Chedraui. de has a very light debt load indeed.

See our latest analysis for Grupo Comercial Chedraui. de

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Grupo Comercial Chedraui. de's net debt to EBITDA ratio is very low, at 0.031, suggesting the debt is only trivial. But EBIT was only 4.3 times the interest expense last year, so the borrowing is clearly weighing on the business somewhat. Sadly, Grupo Comercial Chedraui. de's EBIT actually dropped 7.3% in the last year. If that earnings trend continues then its debt load will grow heavy like the heart of a polar bear watching its sole cub. 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 Grupo Comercial Chedraui. de's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Happily for any shareholders, Grupo Comercial Chedraui. de actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

Grupo Comercial Chedraui. de's conversion of EBIT to free cash flow was a real positive on this analysis, as was its net debt to EBITDA. Having said that, its EBIT growth rate somewhat sensitizes us to potential future risks to the balance sheet. When we consider all the factors mentioned above, we do feel a bit cautious about Grupo Comercial Chedraui. de's use of debt. While debt does have its upside in higher potential returns, we think shareholders should definitely consider how debt levels might make the stock more risky. Over time, share prices tend to follow earnings per share, so if you're interested in Grupo Comercial Chedraui. de, you may well want to click here to check an interactive graph of its earnings per share history.

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.