We Think Lojas Renner (BVMF:LREN3) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Lojas Renner S.A. (BVMF:LREN3) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Lojas Renner's Debt?

As you can see below, Lojas Renner had R$373.9m of debt at September 2025, down from R$1.19b a year prior. But it also has R$1.63b in cash to offset that, meaning it has R$1.26b net cash.

A Look At Lojas Renner's Liabilities

According to the last reported balance sheet, Lojas Renner had liabilities of R$6.04b due within 12 months, and liabilities of R$2.17b due beyond 12 months. Offsetting these obligations, it had cash of R$1.63b as well as receivables valued at R$6.75b due within 12 months. So it can boast R$176.1m more liquid assets than total liabilities.

This state of affairs indicates that Lojas Renner's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the R$12.4b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Lojas Renner has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Lojas Renner

Another good sign is that Lojas Renner has been able to increase its EBIT by 26% in twelve months, making it easier to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Lojas Renner can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Lojas Renner 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. Happily for any shareholders, Lojas Renner actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Lojas Renner has R$1.26b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of R$2.1b, being 124% of its EBIT. So is Lojas Renner's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Lojas Renner you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.