Man Infraconstruction (NSE:MANINFRA) Has A Rock Solid 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. Importantly, Man Infraconstruction Limited (NSE:MANINFRA) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Man Infraconstruction

What Is Man Infraconstruction's Debt?

As you can see below, Man Infraconstruction had ₹4.57b of debt at September 2022, down from ₹4.89b a year prior. But on the other hand it also has ₹5.56b in cash, leading to a ₹989.6m net cash position.

How Strong Is Man Infraconstruction's Balance Sheet?

According to the last reported balance sheet, Man Infraconstruction had liabilities of ₹5.26b due within 12 months, and liabilities of ₹3.19b due beyond 12 months. Offsetting this, it had ₹5.56b in cash and ₹3.58b in receivables that were due within 12 months. So it actually has ₹675.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Man Infraconstruction could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Man Infraconstruction has more cash than debt is arguably a good indication that it can manage its debt safely.

Also positive, Man Infraconstruction grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. 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. Happily for any shareholders, Man Infraconstruction actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Man Infraconstruction has ₹989.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 138% of that EBIT to free cash flow, bringing in ₹3.4b. So is Man Infraconstruction's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Man Infraconstruction is showing 2 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.