GCC. de (BMV:GCC) Could Easily Take On More Debt

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

What Risk Does Debt Bring?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for GCC. de

What Is GCC. de's Net Debt?

The image below, which you can click on for greater detail, shows that GCC. de had debt of US$496.6m at the end of September 2022, a reduction from US$575.2m over a year. But on the other hand it also has US$732.0m in cash, leading to a US$235.4m 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$239.2m falling due within a year, and liabilities of US$718.3m due beyond that. Offsetting these obligations, it had cash of US$732.0m as well as receivables valued at US$184.8m due within 12 months. So its liabilities total US$40.8m more than the combination of its cash and short-term receivables.

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 it's very unlikely that the US$2.35b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, GCC. de boasts net cash, so it's fair to say it does not have a heavy debt load!

GCC. de's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if GCC. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. Happily for any shareholders, GCC. de actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about GCC. de's liabilities, but we can be reassured by the fact it has has net cash of US$235.4m. And it impressed us with free cash flow of US$265m, being 117% 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.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.