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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Tube Investments of India Limited (NSE:TIINDIA) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Tube Investments of India

How Much Debt Does Tube Investments of India Carry?

You can click the graphic below for the historical numbers, but it shows that Tube Investments of India had ₹6.29b of debt in March 2023, down from ₹8.04b, one year before. However, its balance sheet shows it holds ₹16.4b in cash, so it actually has ₹10.1b net cash.

How Healthy Is Tube Investments of India's Balance Sheet?

We can see from the most recent balance sheet that Tube Investments of India had liabilities of ₹46.9b falling due within a year, and liabilities of ₹6.09b due beyond that. On the other hand, it had cash of ₹16.4b and ₹22.1b worth of receivables due within a year. So it has liabilities totalling ₹14.4b more than its cash and near-term receivables, combined.

Of course, Tube Investments of India has a market capitalization of ₹583.7b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Tube Investments of India also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Tube Investments of India grew its EBIT by 34% over the last twelve months, and that growth will make it easier to handle its 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 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 company can only pay off debt with cold hard cash, not accounting profits. 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. During the last three years, Tube Investments of India produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

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 ₹10.1b. And it impressed us with its EBIT growth of 34% over the last year. So we don't think Tube Investments of India's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Tube Investments of India, you may well want to click here to check an interactive graph of its earnings per share history.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.