Tube Investments of India (NSE:TIINDIA) Seems To Use Debt Rather Sparingly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Tube Investments of India

How Much Debt Does Tube Investments of India Carry?

As you can see below, at the end of March 2023, Tube Investments of India had ₹11.3b of debt, up from ₹8.71b a year ago. Click the image for more detail. However, its balance sheet shows it holds ₹15.3b in cash, so it actually has ₹4.07b net cash.

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

The latest balance sheet data shows that Tube Investments of India had liabilities of ₹46.9b due within a year, and liabilities of ₹6.09b falling due after that. Offsetting these obligations, it had cash of ₹15.3b as well as receivables valued at ₹24.3b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹13.4b.

Given Tube Investments of India has a market capitalization of ₹599.0b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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!

Also positive, Tube Investments of India grew its EBIT by 24% in the last year, and that should make it easier to pay down debt, going forward. 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're focused on the future you can check out this free report showing analyst profit forecasts.

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. During the last three years, Tube Investments of India produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Tube Investments of India has ₹4.07b in net cash. And it impressed us with its EBIT growth of 24% over the last year. So we don't think Tube Investments of India's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Tube Investments of India's earnings per share history for free.

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.