Does Lexus Granito (India) (NSE:LEXUS) Have A Healthy Balance Sheet?

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. We can see that Lexus Granito (India) Limited (NSE:LEXUS) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Lexus Granito (India)

What Is Lexus Granito (India)'s Debt?

The chart below, which you can click on for greater detail, shows that Lexus Granito (India) had ₹653.1m in debt in September 2024; about the same as the year before. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Lexus Granito (India)'s Balance Sheet?

We can see from the most recent balance sheet that Lexus Granito (India) had liabilities of ₹598.5m falling due within a year, and liabilities of ₹582.9m due beyond that. Offsetting this, it had ₹19.0k in cash and ₹96.3m in receivables that were due within 12 months. So its liabilities total ₹1.09b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of ₹733.7m, we think shareholders really should watch Lexus Granito (India)'s debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Lexus Granito (India)'s earnings that will influence how the balance sheet holds up in the future. 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 Lexus Granito (India) had a loss before interest and tax, and actually shrunk its revenue by 36%, to ₹823m. That makes us nervous, to say the least.

Caveat Emptor

While Lexus Granito (India)'s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₹84m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through ₹11m in negative free cash flow over the last year. That means it's on the risky side of things. 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. We've identified 3 warning signs with Lexus Granito (India) , and understanding them should be part of your investment process.

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.