We Think Akash Infra-Projects (NSE:AKASH) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Akash Infra-Projects Limited (NSE:AKASH) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Akash Infra-Projects

How Much Debt Does Akash Infra-Projects Carry?

The image below, which you can click on for greater detail, shows that at September 2022 Akash Infra-Projects had debt of ₹358.4m, up from ₹248.1m in one year. However, because it has a cash reserve of ₹55.5m, its net debt is less, at about ₹302.9m.

How Healthy Is Akash Infra-Projects' Balance Sheet?

According to the last reported balance sheet, Akash Infra-Projects had liabilities of ₹660.9m due within 12 months, and liabilities of ₹158.1m due beyond 12 months. On the other hand, it had cash of ₹55.5m and ₹1.14b worth of receivables due within a year. So it can boast ₹380.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that Akash Infra-Projects' balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Akash Infra-Projects will need earnings to service that debt. 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.

In the last year Akash Infra-Projects wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to ₹859m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Akash Infra-Projects managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping ₹114m. Having said that, the balance sheet has plenty of liquid assets for now. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Akash Infra-Projects you should know about.

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.