Here's Why Grupo Comercial Chedraui. de (BMV:CHDRAUIB) Can Manage Its Debt Responsibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Grupo Comercial Chedraui, S.A.B. de C.V. (BMV:CHDRAUIB) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Grupo Comercial Chedraui. de Carry?

As you can see below, Grupo Comercial Chedraui. de had Mex$8.61b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have Mex$9.74b in cash offsetting this, leading to net cash of Mex$1.13b.

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$42.2b due within a year, and liabilities of Mex$61.3b falling due after that. Offsetting this, it had Mex$9.74b in cash and Mex$5.38b in receivables that were due within 12 months. So its liabilities total Mex$88.4b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of Mex$145.0b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Grupo Comercial Chedraui. de also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Grupo Comercial Chedraui. de

Sadly, Grupo Comercial Chedraui. de's EBIT actually dropped 7.5% in the last year. If earnings continue on that decline then managing that debt will be difficult like delivering hot soup on a unicycle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Grupo Comercial Chedraui. de can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Grupo Comercial Chedraui. de 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. 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.

Summing Up

Although Grupo Comercial Chedraui. de's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of Mex$1.13b. The cherry on top was that in converted 114% of that EBIT to free cash flow, bringing in Mex$18b. So we are not troubled with Grupo Comercial Chedraui. de's debt use. 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.