We Think Jerónimo Martins SGPS (ELI:JMT) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 Jerónimo Martins, SGPS, S.A. (ELI:JMT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Jerónimo Martins SGPS's Net Debt?

As you can see below, at the end of March 2025, Jerónimo Martins SGPS had €1.10b of debt, up from €790.0m a year ago. Click the image for more detail. However, it does have €1.61b in cash offsetting this, leading to net cash of €503.0m.

A Look At Jerónimo Martins SGPS' Liabilities

Zooming in on the latest balance sheet data, we can see that Jerónimo Martins SGPS had liabilities of €7.76b due within 12 months and liabilities of €4.29b due beyond that. Offsetting these obligations, it had cash of €1.61b as well as receivables valued at €931.0m due within 12 months. So its liabilities total €9.52b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its very significant market capitalization of €14.5b, so it does suggest shareholders should keep an eye on Jerónimo Martins SGPS' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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

Unfortunately, Jerónimo Martins SGPS saw its EBIT slide 4.5% in the last twelve months. If earnings continue on that decline then managing that debt will be difficult like delivering hot soup on a unicycle. When analysing debt levels, the balance sheet is the obvious place to start. 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'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. While Jerónimo Martins SGPS 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, Jerónimo Martins SGPS produced sturdy free cash flow equating to 76% of its EBIT, about what we'd expect. 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 €503.0m. The cherry on top was that in converted 76% of that EBIT to free cash flow, bringing in €454m. So we are not troubled with Jerónimo Martins SGPS's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Jerónimo Martins SGPS's earnings per share history for free.

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.