Is Corporativo Fragua. de (BMV:FRAGUAB) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Corporativo Fragua, S.A.B. de C.V. (BMV:FRAGUAB) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Corporativo Fragua. de's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Corporativo Fragua. de had debt of Mex$2.20b, up from Mex$1.05b in one year. But it also has Mex$5.11b in cash to offset that, meaning it has Mex$2.91b net cash.

How Strong Is Corporativo Fragua. de's Balance Sheet?

According to the last reported balance sheet, Corporativo Fragua. de had liabilities of Mex$25.9b due within 12 months, and liabilities of Mex$3.82b due beyond 12 months. Offsetting these obligations, it had cash of Mex$5.11b as well as receivables valued at Mex$4.59b due within 12 months. So its liabilities total Mex$20.0b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Corporativo Fragua. de is worth Mex$51.5b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Corporativo Fragua. de boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Corporativo Fragua. de

The good news is that Corporativo Fragua. de has increased its EBIT by 6.0% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Corporativo Fragua. de can strengthen its balance sheet over time. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Corporativo Fragua. de may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Corporativo Fragua. de recorded free cash flow of 22% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although Corporativo Fragua. de'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$2.91b. And it also grew its EBIT by 6.0% over the last year. So we are not troubled with Corporativo Fragua. de's debt use. 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. Be aware that Corporativo Fragua. de is showing 2 warning signs in our investment analysis , and 1 of those is significant...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.