Does Jerónimo Martins SGPS (ELI:JMT) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Jerónimo Martins, SGPS, S.A. (ELI:JMT) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Jerónimo Martins SGPS Carry?

As you can see below, at the end of June 2025, Jerónimo Martins SGPS had €1.09b of debt, up from €799.0m a year ago. Click the image for more detail. However, it does have €1.45b in cash offsetting this, leading to net cash of €367.0m.

How Strong Is Jerónimo Martins SGPS' Balance Sheet?

The latest balance sheet data shows that Jerónimo Martins SGPS had liabilities of €7.89b due within a year, and liabilities of €4.28b falling due after that. On the other hand, it had cash of €1.45b and €996.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €9.72b.

This deficit is considerable relative to its very significant market capitalization of €12.9b, so it does suggest shareholders should keep an eye on Jerónimo Martins SGPS' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Jerónimo Martins SGPS also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Jerónimo Martins SGPS

Jerónimo Martins SGPS grew its EBIT by 5.1% in the last year. That's far from incredible but it is a good thing, when it comes to paying off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Jerónimo Martins SGPS'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Jerónimo Martins SGPS 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, Jerónimo Martins SGPS recorded free cash flow worth 77% 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 Jerónimo Martins SGPS does have more liabilities than liquid assets, it also has net cash of €367.0m. And it impressed us with free cash flow of €954m, being 77% of its EBIT. So we are not troubled with Jerónimo Martins SGPS's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Jerónimo Martins SGPS that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.