Does Tube Investments of India (NSE:TIINDIA) Have A Healthy Balance Sheet?

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.' 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. Importantly, Tube Investments of India Limited (NSE:TIINDIA) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Tube Investments of India

What Is Tube Investments of India's Debt?

You can click the graphic below for the historical numbers, but it shows that Tube Investments of India had ₹9.12b of debt in September 2022, down from ₹16.0b, one year before. But on the other hand it also has ₹13.3b in cash, leading to a ₹4.16b net cash position.

A Look At Tube Investments of India's Liabilities

Zooming in on the latest balance sheet data, we can see that Tube Investments of India had liabilities of ₹50.3b due within 12 months and liabilities of ₹3.97b due beyond that. On the other hand, it had cash of ₹13.3b and ₹21.1b worth of receivables due within a year. So its liabilities total ₹19.9b more than the combination of its cash and short-term receivables.

Since publicly traded Tube Investments of India shares are worth a total of ₹522.8b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Tube Investments of India boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Tube Investments of India has boosted its EBIT by 40%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Tube Investments of India 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. Tube Investments of India 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. Over the most recent three years, Tube Investments of India recorded free cash flow worth 60% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about Tube Investments of India's liabilities, but we can be reassured by the fact it has has net cash of ₹4.16b. And it impressed us with its EBIT growth of 40% over the last year. So we don't think Tube Investments of India's use of debt is risky. We'd be very excited to see if Tube Investments of India insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.