Man Infraconstruction (NSE:MANINFRA) Has A Pretty 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 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. Importantly, Man Infraconstruction Limited (NSE:MANINFRA) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Man Infraconstruction

What Is Man Infraconstruction's Net Debt?

The image below, which you can click on for greater detail, shows that Man Infraconstruction had debt of ₹184.0m at the end of September 2024, a reduction from ₹2.17b over a year. However, it does have ₹4.77b in cash offsetting this, leading to net cash of ₹4.58b.

How Strong Is Man Infraconstruction's Balance Sheet?

We can see from the most recent balance sheet that Man Infraconstruction had liabilities of ₹4.40b falling due within a year, and liabilities of ₹295.2m due beyond that. On the other hand, it had cash of ₹4.77b and ₹7.65b worth of receivables due within a year. So it can boast ₹7.72b more liquid assets than total liabilities.

This surplus suggests that Man Infraconstruction has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Man Infraconstruction boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that Man Infraconstruction's load is not too heavy, because its EBIT was down 36% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Man Infraconstruction 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Man Infraconstruction 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, Man Infraconstruction actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Man Infraconstruction has net cash of ₹4.58b, as well as more liquid assets than liabilities. The cherry on top was that in converted 125% of that EBIT to free cash flow, bringing in ₹4.6b. So we are not troubled with Man Infraconstruction's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Man Infraconstruction has 1 warning sign we think you should be aware of.

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.

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.