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.' 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 the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we examine debt levels, we first consider both cash and debt levels, 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 Debt?

The image below, which you can click on for greater detail, shows that Promotora y Operadora de Infraestructura S. A. B. de C. V had debt of Mex$13.0b at the end of June 2024, a reduction from Mex$15.0b over a year. However, its balance sheet shows it holds Mex$27.2b in cash, so it actually has Mex$14.2b net cash.

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$5.81b falling due within a year, and liabilities of Mex$12.5b due beyond that. Offsetting these obligations, it had cash of Mex$27.2b as well as receivables valued at Mex$1.30b due within 12 months. So it can boast Mex$10.2b 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!

Another good sign is that Promotora y Operadora de Infraestructura S. A. B. de C. V has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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. Over the most recent three years, Promotora y Operadora de Infraestructura S. A. B. de C. V recorded free cash flow worth 77% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Promotora y Operadora de Infraestructura S. A. B. de C. V has net cash of Mex$14.2b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of Mex$7.3b, being 77% of its EBIT. So we don't think Promotora y Operadora de Infraestructura S. A. B. de C. V's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Promotora y Operadora de Infraestructura S. A. B. de C. V that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.