BBB Foods (NYSE:TBBB) Seems To Use Debt Quite Sensibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 BBB Foods Inc. (NYSE:TBBB) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is BBB Foods's Net Debt?

You can click the graphic below for the historical numbers, but it shows that BBB Foods had Mex$1.00b of debt in March 2025, down from Mex$1.05b, one year before. But on the other hand it also has Mex$4.63b in cash, leading to a Mex$3.63b net cash position.

How Healthy Is BBB Foods' Balance Sheet?

We can see from the most recent balance sheet that BBB Foods had liabilities of Mex$11.8b falling due within a year, and liabilities of Mex$8.05b due beyond that. Offsetting these obligations, it had cash of Mex$4.63b as well as receivables valued at Mex$990.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$14.2b.

BBB Foods has a market capitalization of Mex$57.6b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, BBB Foods also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for BBB Foods

Also relevant is that BBB Foods has grown its EBIT by a very respectable 21% in the last year, thus enhancing its ability to pay down 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 BBB Foods'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 company can only pay off debt with cold hard cash, not accounting profits. While BBB Foods 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. Over the last three years, BBB Foods 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 BBB Foods's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of Mex$3.63b. The cherry on top was that in converted 143% of that EBIT to free cash flow, bringing in Mex$1.5b. So we are not troubled with BBB Foods'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 BBB Foods's earnings per share history for free.

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.