R.P.P. Infra Projects (NSE:RPPINFRA) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that R.P.P. Infra Projects Limited (NSE:RPPINFRA) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for R.P.P. Infra Projects

How Much Debt Does R.P.P. Infra Projects Carry?

The image below, which you can click on for greater detail, shows that R.P.P. Infra Projects had debt of ₹344.1m at the end of September 2024, a reduction from ₹882.9m over a year. But on the other hand it also has ₹626.5m in cash, leading to a ₹282.4m net cash position.

A Look At R.P.P. Infra Projects' Liabilities

Zooming in on the latest balance sheet data, we can see that R.P.P. Infra Projects had liabilities of ₹3.63b due within 12 months and liabilities of ₹184.7m due beyond that. On the other hand, it had cash of ₹626.5m and ₹3.37b worth of receivables due within a year. So it actually has ₹175.8m more liquid assets than total liabilities.

This surplus suggests that R.P.P. Infra Projects has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that R.P.P. Infra Projects has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that R.P.P. Infra Projects has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since R.P.P. Infra Projects 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. R.P.P. Infra Projects 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 most recent three years, R.P.P. Infra Projects recorded free cash flow worth 51% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case R.P.P. Infra Projects has ₹282.4m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 39% over the last year. So we don't think R.P.P. Infra Projects's use of debt is risky. 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. Be aware that R.P.P. Infra Projects is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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.