These 4 Measures Indicate That Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

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

How Much Debt Does Promotora y Operadora de Infraestructura S. A. B. de C. V Carry?

You can click the graphic below for the historical numbers, but it shows that Promotora y Operadora de Infraestructura S. A. B. de C. V had Mex$12.8b of debt in September 2024, down from Mex$15.0b, one year before. But on the other hand it also has Mex$29.2b in cash, leading to a Mex$16.5b net cash position.

How Strong 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$5.53b due within a year, and liabilities of Mex$12.4b falling due after that. Offsetting these obligations, it had cash of Mex$29.2b as well as receivables valued at Mex$1.20b due within 12 months. So it can boast Mex$12.5b 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!

And we also note warmly that Promotora y Operadora de Infraestructura S. A. B. de C. V grew its EBIT by 18% last year, making its debt load easier to handle. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Promotora y Operadora de Infraestructura S. A. B. de C. V has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Promotora y Operadora de Infraestructura S. A. B. de C. V produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

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$16.5b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 75% of that EBIT to free cash flow, bringing in Mex$6.7b. So is Promotora y Operadora de Infraestructura S. A. B. de C. V's debt a risk? It doesn't seem so to us. 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 1 warning sign for Promotora y Operadora de Infraestructura S. A. B. de C. V that you should be aware of.

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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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.