Does Nexa Resources (NYSE:NEXA) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Nexa Resources S.A. (NYSE:NEXA) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Nexa Resources

What Is Nexa Resources's Debt?

As you can see below, Nexa Resources had US$1.66b of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$422.3m in cash, and so its net debt is US$1.24b.

How Strong Is Nexa Resources' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nexa Resources had liabilities of US$898.6m due within 12 months and liabilities of US$2.31b due beyond that. On the other hand, it had cash of US$422.3m and US$166.2m worth of receivables due within a year. So its liabilities total US$2.62b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$796.0m 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, Nexa Resources would probably need a major re-capitalization if its creditors were to demand repayment. 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 Nexa Resources'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.

In the last year Nexa Resources had a loss before interest and tax, and actually shrunk its revenue by 7.1%, to US$2.7b. That's not what we would hope to see.

Caveat Emptor

Importantly, Nexa Resources had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$57m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized US$75m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Nexa Resources , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.