Does Gujarat Apollo Industries (NSE:GUJAPOLLO) Have A Healthy Balance Sheet?

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 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. We can see that Gujarat Apollo Industries Limited (NSE:GUJAPOLLO) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Gujarat Apollo Industries

What Is Gujarat Apollo Industries's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Gujarat Apollo Industries had ₹255.1m of debt, an increase on ₹178.1m, over one year. However, it also had ₹197.4m in cash, and so its net debt is ₹57.7m.

A Look At Gujarat Apollo Industries' Liabilities

The latest balance sheet data shows that Gujarat Apollo Industries had liabilities of ₹325.8m due within a year, and liabilities of ₹73.6m falling due after that. Offsetting these obligations, it had cash of ₹197.4m as well as receivables valued at ₹2.85b due within 12 months. So it actually has ₹2.65b more liquid assets than total liabilities.

This luscious liquidity implies that Gujarat Apollo Industries' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Gujarat Apollo Industries will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Gujarat Apollo Industries reported revenue of ₹719m, which is a gain of 29%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Gujarat Apollo Industries still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹106m. 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. However, not all investment risk resides within the balance sheet - far from it. For example Gujarat Apollo Industries has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.