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 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. As with many other companies GCC, S.A.B. de C.V. (BMV:GCC) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for GCC. de
How Much Debt Does GCC. de Carry?
The chart below, which you can click on for greater detail, shows that GCC. de had US$496.9m in debt in September 2023; about the same as the year before. But on the other hand it also has US$857.3m in cash, leading to a US$360.4m net cash position.
A Look At GCC. de's Liabilities
We can see from the most recent balance sheet that GCC. de had liabilities of US$267.2m falling due within a year, and liabilities of US$732.0m due beyond that. Offsetting this, it had US$857.3m in cash and US$182.7m in receivables that were due within 12 months. So it actually has US$40.9m more liquid assets than total liabilities.
Having regard to GCC. de's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$3.19b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, GCC. de boasts net cash, so it's fair to say it does not have a heavy debt load!
On top of that, GCC. de grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine GCC. 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. GCC. de 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, GCC. de recorded free cash flow worth a fulsome 88% 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 it is always sensible to investigate a company's debt, in this case GCC. de has US$360.4m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$191m, being 88% of its EBIT. So we don't think GCC. de's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of GCC. de's earnings per share history for free.
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.
About BMV:GCC *
GCC. de
Through its subsidiaries, produces, distributes, and sells gray Portland cement, ready-mix concrete, aggregates, and other building construction materials in Mexico and the United States.
Flawless balance sheet and undervalued.
