Does GCC. de (BMV:GCC) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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, GCC, S.A.B. de C.V. (BMV:GCC) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for GCC. de

What Is GCC. de's Net Debt?

The chart below, which you can click on for greater detail, shows that GCC. de had US$497.2m in debt in September 2024; about the same as the year before. However, it does have US$897.2m in cash offsetting this, leading to net cash of US$400.0m.

A Look At GCC. de's Liabilities

Zooming in on the latest balance sheet data, we can see that GCC. de had liabilities of US$327.3m due within 12 months and liabilities of US$740.4m due beyond that. On the other hand, it had cash of US$897.2m and US$204.9m worth of receivables due within a year. So it can boast US$34.4m more liquid assets than total liabilities.

This state of affairs indicates that GCC. de's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.78b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that GCC. de has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that GCC. de grew its EBIT by 14% last year, making its debt load easier to handle. 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. In the last three years, GCC. de's free cash flow amounted to 49% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case GCC. de has US$400.0m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 14% in the last twelve months. So is GCC. de's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 1 warning sign for GCC. de that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.