Does Noida Toll Bridge (NSE:NOIDATOLL) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Noida Toll Bridge Company Limited (NSE:NOIDATOLL) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

View our latest analysis for Noida Toll Bridge

What Is Noida Toll Bridge's Net Debt?

The chart below, which you can click on for greater detail, shows that Noida Toll Bridge had ₹178.0m in debt in March 2020; about the same as the year before. However, it does have ₹132.7m in cash offsetting this, leading to net debt of about ₹45.3m.

How Healthy Is Noida Toll Bridge's Balance Sheet?

According to the last reported balance sheet, Noida Toll Bridge had liabilities of ₹936.9m due within 12 months, and liabilities of ₹346.7m due beyond 12 months. Offsetting these obligations, it had cash of ₹132.7m as well as receivables valued at ₹59.8m due within 12 months. So its liabilities total ₹1.1b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₹633.1m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Noida Toll Bridge would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Noida Toll Bridge's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Noida Toll Bridge made a loss at the EBIT level, and saw its revenue drop to ₹195m, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

While Noida Toll Bridge's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₹350.5m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of ₹280.2m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Noida Toll Bridge you should be aware of, and 2 of them shouldn't be ignored.

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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