Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) Has A Somewhat Strained Balance Sheet

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (BMV:VOLARA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 2 warning signs about Controladora Vuela Compañía de Aviación. de. View them for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

What Is Controladora Vuela Compañía de Aviación. de's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Controladora Vuela Compañía de Aviación. de had US$766.0m of debt, an increase on US$641.5m, over one year. However, its balance sheet shows it holds US$862.0m in cash, so it actually has US$96.0m net cash.

How Healthy Is Controladora Vuela Compañía de Aviación. de's Balance Sheet?

We can see from the most recent balance sheet that Controladora Vuela Compañía de Aviación. de had liabilities of US$1.82b falling due within a year, and liabilities of US$3.56b due beyond that. Offsetting this, it had US$862.0m in cash and US$212.0m in receivables that were due within 12 months. So its liabilities total US$4.30b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$541.4m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Controladora Vuela Compañía de Aviación. de would probably need a major re-capitalization if its creditors were to demand repayment. Given that Controladora Vuela Compañía de Aviación. de has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

View our latest analysis for Controladora Vuela Compañía de Aviación. de

On the other hand, Controladora Vuela Compañía de Aviación. de's EBIT dived 16%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Controladora Vuela Compañía de Aviación. de's ability to maintain a healthy balance sheet going forward. 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. Controladora Vuela Compañía de Aviación. de 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 last three years, Controladora Vuela Compañía de Aviación. de actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Controladora Vuela Compañía de Aviación. de's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$96.0m. And it impressed us with free cash flow of US$401m, being 196% of its EBIT. So while Controladora Vuela Compañía de Aviación. de does not have a great balance sheet, it's certainly not too bad. 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. Be aware that Controladora Vuela Compañía de Aviación. de is showing 2 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

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.