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华尔街日报We Think Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) Is Taking Some Risk With Its Debt
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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) does carry debt. But should shareholders be worried about its use of debt?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
What Is Cyrela Brazil Realty Empreendimentos e Participações's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Cyrela Brazil Realty Empreendimentos e Participações had R$7.72b of debt, an increase on R$5.55b, over one year. On the flip side, it has R$4.20b in cash leading to net debt of about R$3.53b.
How Healthy Is Cyrela Brazil Realty Empreendimentos e Participações' Balance Sheet?
We can see from the most recent balance sheet that Cyrela Brazil Realty Empreendimentos e Participações had liabilities of R$4.14b falling due within a year, and liabilities of R$9.32b due beyond that. Offsetting this, it had R$4.20b in cash and R$4.00b in receivables that were due within 12 months. So its liabilities total R$5.27b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Cyrela Brazil Realty Empreendimentos e Participações has a market capitalization of R$10.9b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt.
Check out our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
Cyrela Brazil Realty Empreendimentos e Participações's net debt to EBITDA ratio of about 2.5 suggests only moderate use of debt. And its commanding EBIT of 1k times its interest expense, implies the debt load is as light as a peacock feather. Also relevant is that Cyrela Brazil Realty Empreendimentos e Participações has grown its EBIT by a very respectable 25% in the last year, thus enhancing its ability to pay down debt. 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 Cyrela Brazil Realty Empreendimentos e Participações'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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Cyrela Brazil Realty Empreendimentos e Participações saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
Our View
We feel some trepidation about Cyrela Brazil Realty Empreendimentos e Participações's difficulty conversion of EBIT to free cash flow, but we've got positives to focus on, too. To wit both its interest cover and EBIT growth rate were encouraging signs. Looking at all the angles mentioned above, it does seem to us that Cyrela Brazil Realty Empreendimentos e Participações is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Cyrela Brazil Realty Empreendimentos e Participações you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.