Alsea. de (BMV:ALSEA) Has Debt But No Earnings; Should You Worry?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Alsea, S.A.B. de C.V. (BMV:ALSEA) does use debt in its business. But should shareholders be worried about its use of debt?

We've discovered 3 warning signs about Alsea. de. View them for free.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Alsea. de Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Alsea. de had Mex$33.1b of debt, an increase on Mex$27.6b, over one year. However, it does have Mex$6.47b in cash offsetting this, leading to net debt of about Mex$26.6b.

How Healthy Is Alsea. de's Balance Sheet?

According to the last reported balance sheet, Alsea. de had liabilities of Mex$27.2b due within 12 months, and liabilities of Mex$47.2b due beyond 12 months. Offsetting these obligations, it had cash of Mex$6.47b as well as receivables valued at Mex$4.55b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$63.4b.

This deficit casts a shadow over the Mex$33.0b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Alsea. de would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Alsea. 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.

See our latest analysis for Alsea. de

In the last year Alsea. de wasn't profitable at an EBIT level, but managed to grow its revenue by 3.6%, to Mex$79b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Alsea. de produced an earnings before interest and tax (EBIT) loss. Indeed, it lost Mex$440m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of Mex$703m and the profit of Mex$877m. So there is definitely a chance that it can improve things in the next few years. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Alsea. de you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.