Man Infraconstruction (NSE:MANINFRA) Seems To Use Debt Rather Sparingly

By
Simply Wall St
Published
March 15, 2022
NSEI:MANINFRA
Source: Shutterstock

Warren Buffett famously said, '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. We can see that Man Infraconstruction Limited (NSE:MANINFRA) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Man Infraconstruction

What Is Man Infraconstruction's Net Debt?

As you can see below, at the end of September 2021, Man Infraconstruction had ₹4.89b of debt, up from ₹4.44b a year ago. Click the image for more detail. However, it does have ₹5.38b in cash offsetting this, leading to net cash of ₹487.2m.

debt-equity-history-analysis
NSEI:MANINFRA Debt to Equity History March 15th 2022

How Healthy Is Man Infraconstruction's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Man Infraconstruction had liabilities of ₹4.51b due within 12 months and liabilities of ₹3.55b due beyond that. On the other hand, it had cash of ₹5.38b and ₹1.95b worth of receivables due within a year. So it has liabilities totalling ₹727.1m more than its cash and near-term receivables, combined.

Having regard to Man Infraconstruction's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹38.8b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Man Infraconstruction also has more cash than debt, so we're pretty confident it can manage its debt safely.

Pleasingly, Man Infraconstruction is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 291% 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 Man Infraconstruction 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. 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. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

We could understand if investors are concerned about Man Infraconstruction's liabilities, but we can be reassured by the fact it has has net cash of ₹487.2m. The cherry on top was that in converted 141% of that EBIT to free cash flow, bringing in ₹2.7b. So we don't think Man Infraconstruction's use of debt is risky. 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. For example, we've discovered 1 warning sign for Man Infraconstruction that you should be aware of before investing here.

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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