The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (BMV:GAPB) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Grupo Aeroportuario del Pacífico. de's Net Debt?
The image below, which you can click on for greater detail, shows that at March 2025 Grupo Aeroportuario del Pacífico. de had debt of Mex$49.5b, up from Mex$40.5b in one year. However, it also had Mex$16.2b in cash, and so its net debt is Mex$33.3b.
How Healthy Is Grupo Aeroportuario del Pacífico. de's Balance Sheet?
According to the last reported balance sheet, Grupo Aeroportuario del Pacífico. de had liabilities of Mex$17.7b due within 12 months, and liabilities of Mex$39.1b due beyond 12 months. Offsetting this, it had Mex$16.2b in cash and Mex$4.52b in receivables that were due within 12 months. So it has liabilities totalling Mex$36.0b more than its cash and near-term receivables, combined.
Of course, Grupo Aeroportuario del Pacífico. de has a titanic market capitalization of Mex$214.5b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.
Check out our latest analysis for Grupo Aeroportuario del Pacífico. de
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Grupo Aeroportuario del Pacífico. de's net debt is sitting at a very reasonable 1.7 times its EBITDA, while its EBIT covered its interest expense just 5.3 times last year. While these numbers do not alarm us, it's worth noting that the cost of the company's debt is having a real impact. Grupo Aeroportuario del Pacífico. de grew its EBIT by 4.3% in the last year. That's far from incredible but it is a good thing, when it comes to paying off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Grupo Aeroportuario del Pacífico. de's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, Grupo Aeroportuario del Pacífico. de's free cash flow amounted to 40% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Our View
Grupo Aeroportuario del Pacífico. de's level of total liabilities was a real positive on this analysis, as was its EBIT growth rate. Having said that, its conversion of EBIT to free cash flow somewhat sensitizes us to potential future risks to the balance sheet. We would also note that Infrastructure industry companies like Grupo Aeroportuario del Pacífico. de commonly do use debt without problems. Considering this range of data points, we think Grupo Aeroportuario del Pacífico. de is in a good position to manage its debt levels. Having said that, the load is sufficiently heavy that we would recommend any shareholders keep a close eye on it. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Grupo Aeroportuario del Pacífico. de .
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.