Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Seems To Use Debt Quite Sensibly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 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$16.5b in debt in December 2020; about the same as the year before. However, it does have Mex$26.7b in cash offsetting this, leading to net cash of Mex$10.2b.

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

According to the last reported balance sheet, Promotora y Operadora de Infraestructura S. A. B. de C. V had liabilities of Mex$3.57b due within 12 months, and liabilities of Mex$18.0b due beyond 12 months. Offsetting these obligations, it had cash of Mex$26.7b as well as receivables valued at Mex$1.37b due within 12 months. So it actually has Mex$6.42b more liquid assets than total liabilities.

This surplus suggests that Promotora y Operadora de Infraestructura S. A. B. de C. V has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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!

It is just as well that Promotora y Operadora de Infraestructura S. A. B. de C. V's load is not too heavy, because its EBIT was down 20% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. 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 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. In the last three years, Promotora y Operadora de Infraestructura S. A. B. de C. V created free cash flow amounting to 9.4% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

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$10.2b 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. Over time, share prices tend to follow earnings per share, so if you're interested in Promotora y Operadora de Infraestructura S. A. B. de C. V, you may well want to click here to check an interactive graph of its earnings per share history.

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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