Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider 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$16.0b in debt in September 2022; about the same as the year before. But on the other hand it also has Mex$25.8b in cash, leading to a Mex$9.82b net cash position.

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

The latest balance sheet data shows that Promotora y Operadora de Infraestructura S. A. B. de C. V had liabilities of Mex$6.80b due within a year, and liabilities of Mex$16.4b falling due after that. On the other hand, it had cash of Mex$25.8b and Mex$1.37b worth of receivables due within a year. So it can boast Mex$3.93b 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. Simply put, the fact that Promotora y Operadora de Infraestructura S. A. B. de C. V has more cash than debt is arguably a good indication that it can manage its debt safely.

Also good is that Promotora y Operadora de Infraestructura S. A. B. de C. V grew its EBIT at 14% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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. Over the most recent three years, Promotora y Operadora de Infraestructura S. A. B. de C. V recorded free cash flow worth 55% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

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$9.82b in net cash and a decent-looking balance sheet. And it also grew its EBIT by 14% over the last year. So we don't think Promotora y Operadora de Infraestructura S. A. B. de C. V's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. 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, 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.