East El Puerto de Liverpool. of (BMV: LIVEPOLC-1) A risky investment?

David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Above all, El Puerto de Liverpool, SAB de CV (BMV: LIVEPOLC-1) carries a debt. But the real question is whether this debt makes the business risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first look at cash and debt levels, together.

Check out our latest review for El Puerto de Liverpool. of

How much is Liverpool’s El Puerto debt. by Carry?

As you can see below, El Puerto de Liverpool. de had a debt of Mex 34.9 billion in September 2021, up from Mex 44.7 billion the previous year. However, given that it has a cash reserve of M $ 20.4 billion, its net debt is lower, at around M $ 14.5 billion.

BMV: LIVEPOL C-1 History of debt on equity 27 November 2021

How healthy is El Puerto de Liverpool. the record of?

According to the latest report published, El Puerto de Liverpool. de had a liability of M $ 42.5 billion due within 12 months and a liability of M $ 49.2 billion due beyond 12 months. On the other hand, he had cash of M $ 20.4 billion and M $ 29.6 billion in receivables due within one year. Its liabilities therefore total Mexican $ 41.7 billion more than the combination of its cash and short-term receivables.

While that might sound like a lot, it’s not that bad from Liverpool’s El Puerto. de has a market capitalization of Mex $ 119.9 billion, and could therefore likely strengthen its balance sheet by raising capital if needed. However, it is always worth taking a close look at your ability to repay your debt.

We measure a company’s indebtedness relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating the ease with which its earnings before interest and taxes (EBIT ) covers its interests. costs (interest coverage). The advantage of this approach is that we take into account both the absolute amount of debt (with net debt versus EBITDA) and the actual interest charges associated with this debt (with its coverage rate). interests).

Looking at its net debt on EBITDA of 0.78 and the interest coverage of 5.5 times, it looks to us as El Puerto of Liverpool. de probably uses the debt in a fairly reasonable way. We therefore recommend that you keep a close eye on the impact of financing costs on the business. It should be noted that El Puerto de Liverpool. De’s EBIT has soared like bamboo after the rain, gaining 94% in the past twelve months. This will make it easier to manage your debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Liverpool’s El Puerto. de can strengthen its track record over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. It is therefore worth checking to what extent this EBIT is supported by free cash flow. Over the past three years, El Puerto de Liverpool. de generated free cash flow of 83% of its very robust EBIT, more than we expected. This positions it well to repay debt if it is desirable.

Our point of view

El Puerto de Liverpool. Converting EBIT to free cash flow suggests he can manage his debt as easily as Cristiano Ronaldo could score a goal against an Under-14 goalkeeper. And that’s just the start of good news as its EBIT growth rate is also very encouraging. Looking at the big picture, we think of Liverpool’s El Puerto. the use of debt by de seems perfectly reasonable and we are not concerned about that. While debt comes with risk, when used wisely, it can also generate a better return on equity. On top of most other metrics, we think it’s important to track how quickly earnings per share are growing, if at all. If you also got that figured out, you’re in luck because today you can see this interactive graphic of El Puerto from Liverpool. the history of earnings per share of for free.

At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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