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. As with many other companies Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2025 Loma Negra Compañía Industrial Argentina Sociedad Anónima had AR$197.2b of debt, an increase on AR$183.1b, over one year. However, it also had AR$10.6b in cash, and so its net debt is AR$186.6b.
How Healthy Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's Balance Sheet?
We can see from the most recent balance sheet that Loma Negra Compañía Industrial Argentina Sociedad Anónima had liabilities of AR$356.7b falling due within a year, and liabilities of AR$313.0b due beyond that. Offsetting this, it had AR$10.6b in cash and AR$66.9b in receivables that were due within 12 months. So its liabilities total AR$592.3b more than the combination of its cash and short-term receivables.
This deficit isn't so bad because Loma Negra Compañía Industrial Argentina Sociedad Anónima is worth AR$1.76t, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
View our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Looking at its net debt to EBITDA of 1.1 and interest cover of 3.0 times, it seems to us that Loma Negra Compañía Industrial Argentina Sociedad Anónima is probably using debt in a pretty reasonable way. So we'd recommend keeping a close eye on the impact financing costs are having on the business. Unfortunately, Loma Negra Compañía Industrial Argentina Sociedad Anónima's EBIT flopped 15% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Loma Negra Compañía Industrial Argentina Sociedad Anónima's ability to maintain a healthy balance sheet going forward. 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 company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. During the last three years, Loma Negra Compañía Industrial Argentina Sociedad Anónima produced sturdy free cash flow equating to 60% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Our View
Both Loma Negra Compañía Industrial Argentina Sociedad Anónima's EBIT growth rate and its interest cover were discouraging. At least its net debt to EBITDA gives us reason to be optimistic. Looking at all the angles mentioned above, it does seem to us that Loma Negra Compañía Industrial Argentina Sociedad Anónima 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. Over time, share prices tend to follow earnings per share, so if you're interested in Loma Negra Compañía Industrial Argentina Sociedad Anónima, you may well want to click here to check an interactive graph of its earnings per share history.
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.