Inox Green Energy Services (NSE:INOXGREEN) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Inox Green Energy Services Limited (NSE:INOXGREEN) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Inox Green Energy Services

How Much Debt Does Inox Green Energy Services Carry?

You can click the graphic below for the historical numbers, but it shows that Inox Green Energy Services had ₹1.67b of debt in September 2024, down from ₹2.11b, one year before. However, its balance sheet shows it holds ₹1.85b in cash, so it actually has ₹176.1m net cash.

How Strong Is Inox Green Energy Services' Balance Sheet?

We can see from the most recent balance sheet that Inox Green Energy Services had liabilities of ₹4.90b falling due within a year, and liabilities of ₹2.28b due beyond that. Offsetting this, it had ₹1.85b in cash and ₹5.39b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Inox Green Energy Services' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹58.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Inox Green Energy Services boasts net cash, so it's fair to say it does not have a heavy debt load!

Pleasingly, Inox Green Energy Services is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 148% gain in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Inox Green Energy Services 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Inox Green Energy Services 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. Over the last three years, Inox Green Energy Services saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Inox Green Energy Services has net cash of ₹176.1m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 148% over the last year. So we don't have any problem with Inox Green Energy Services's use of debt. 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. To that end, you should be aware of the 2 warning signs we've spotted with Inox Green Energy Services .

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.