We Think APAR Industries (NSE:APARINDS) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, APAR Industries Limited (NSE:APARINDS) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for APAR Industries

What Is APAR Industries's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 APAR Industries had debt of ₹4.72b, up from ₹3.44b in one year. However, its balance sheet shows it holds ₹5.69b in cash, so it actually has ₹971.6m net cash.

How Strong Is APAR Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that APAR Industries had liabilities of ₹55.5b due within 12 months and liabilities of ₹4.65b due beyond that. Offsetting this, it had ₹5.69b in cash and ₹40.3b in receivables that were due within 12 months. So its liabilities total ₹14.2b more than the combination of its cash and short-term receivables.

Since publicly traded APAR Industries shares are worth a total of ₹397.4b, 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, APAR Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

We saw APAR Industries grow its EBIT by 5.7% in the last twelve months. Whilst that hardly knocks our socks off it is a positive when it comes to debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if APAR Industries 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. While APAR Industries has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, APAR Industries reported free cash flow worth 4.1% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

We could understand if investors are concerned about APAR Industries's liabilities, but we can be reassured by the fact it has has net cash of ₹971.6m. On top of that, it increased its EBIT by 5.7% in the last twelve months. So we are not troubled with APAR Industries's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with APAR Industries (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.

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.