Does Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, 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 Net 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$16.3b in debt in June 2021; about the same as the year before. However, it does have Mex$27.9b in cash offsetting this, leading to net cash of Mex$11.6b.

A Look At Promotora y Operadora de Infraestructura S. A. B. de C. V's Liabilities

We can see from the most recent balance sheet that Promotora y Operadora de Infraestructura S. A. B. de C. V had liabilities of Mex$5.70b falling due within a year, and liabilities of Mex$17.6b due beyond that. Offsetting this, it had Mex$27.9b in cash and Mex$1.61b in receivables that were due within 12 months. So it can boast Mex$6.16b 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!

Fortunately, Promotora y Operadora de Infraestructura S. A. B. de C. V grew its EBIT by 9.2% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Promotora y Operadora de Infraestructura S. A. B. de C. V 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, a company can only pay off debt with cold hard cash, not accounting profits. 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. During the last three years, Promotora y Operadora de Infraestructura S. A. B. de C. V burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

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$11.6b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 9.2% in the last twelve months. 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Promotora y Operadora de Infraestructura S. A. B. de C. V that you should be aware of before investing here.

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.

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.

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