Legconcludeary fund manager Li Lu (who Charlie Munger backed) once stated, ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we believe about how risky a company is, we always like to view at its utilize of debt, since debt overload can lead to ruin. As with many other companies Grupo Gicsa S.A.B. de C.V. (BMV:GICSAB) creates utilize of debt. But should shareholders be worried about its utilize of debt?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders becautilize lconcludeers force them to raise capital at a distressed price. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business utilizes is to view at its cash and debt toobtainher.
What Is Grupo Gicsa. de’s Debt?
You can click the graphic below for the historical numbers, but it displays that Grupo Gicsa. de had Mex$24.0b of debt in June 2025, down from Mex$28.3b, one year before. Net debt is about the same, since the it doesn’t have much cash.
A Look At Grupo Gicsa. de’s Liabilities
Zooming in on the latest balance sheet data, we can see that Grupo Gicsa. de had liabilities of Mex$9.98b due within 12 months and liabilities of Mex$32.3b due beyond that. Offsetting these obligations, it had cash of Mex$355.5m as well as receivables valued at Mex$4.33b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$37.6b.
The deficiency here weighs heavily on the Mex$4.50b 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 conclude of the day, Grupo Gicsa. de would probably necessary a major re-capitalization if its creditors were to demand repayment.
View our latest analysis for Grupo Gicsa. de
In order to size up a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Weak interest cover of 1.4 times and a disturbingly high net debt to EBITDA ratio of 6.3 hit our confidence in Grupo Gicsa. de like a one-two punch to the gut. This means we’d consider it to have a heavy debt load. The good news is that Grupo Gicsa. de grew its EBIT a smooth 31% over the last twelve months. Like a mother’s loving embrace of a newborn that sort of growth builds resilience, putting the company in a stronger position to manage its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Grupo Gicsa. de’s ability to maintain a healthy balance sheet going forward. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we clearly necessary to view at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Grupo Gicsa. de recorded free cash flow worth a fulsome 89% of its EBIT, which is stronger than we’d usually expect. That positions it well to pay down debt if desirable to do so.
Our View
We feel some trepidation about Grupo Gicsa. de’s difficulty level of total liabilities, but we’ve received positives to focus on, too. To wit both its conversion of EBIT to free cash flow and EBIT growth rate were encouraging signs. Taking the abovementioned factors toobtainher we do believe Grupo Gicsa. de’s debt poses some risks to the business. So while that leverage does boost returns on equity, we wouldn’t really want to see it increase from here. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. For instance, we’ve identified 4 warning signs for Grupo Gicsa. de (3 are significant) you should be aware of.
If, after all that, you’re more interested in a quick 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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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