Does Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) 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, Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

View our latest analysis for Promotora y Operadora de Infraestructura S. A. B. de C. V

What Is Promotora y Operadora de Infraestructura S. A. B. de C. V's Debt?

The chart below, which you can click on for greater detail, shows that Promotora y Operadora de Infraestructura S. A. B. de C. V had Mex$16.6b in debt in September 2020; about the same as the year before. But on the other hand it also has Mex$29.7b in cash, leading to a Mex$13.1b net cash position.

How Strong Is Promotora y Operadora de Infraestructura S. A. B. de C. V's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Promotora y Operadora de Infraestructura S. A. B. de C. V had liabilities of Mex$5.55b due within 12 months and liabilities of Mex$17.1b due beyond that. On the other hand, it had cash of Mex$29.7b and Mex$1.57b worth of receivables due within a year. So it can boast Mex$8.69b more liquid assets than total liabilities.

This short term liquidity is a sign that Promotora y Operadora de Infraestructura S. A. B. de C. V could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Promotora y Operadora de Infraestructura S. A. B. de C. V boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Promotora y Operadora de Infraestructura S. A. B. de C. V's EBIT dived 18%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 Promotora y Operadora de Infraestructura S. A. B. de C. V'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. Promotora y Operadora de Infraestructura S. A. B. de C. V 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. Looking at the most recent three years, Promotora y Operadora de Infraestructura S. A. B. de C. V recorded free cash flow of 33% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to investigate a company's debt, in this case Promotora y Operadora de Infraestructura S. A. B. de C. V has Mex$13.1b in net cash and a decent-looking balance sheet. So we don't have any problem with Promotora y Operadora de Infraestructura S. A. B. de C. V's use of debt. 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. Case in point: We've spotted 1 warning sign for Promotora y Operadora de Infraestructura S. A. B. de C. V you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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