Tega Industries (NSE:TEGA) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Tega Industries Limited (NSE:TEGA) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Tega Industries

How Much Debt Does Tega Industries Carry?

As you can see below, Tega Industries had ₹2.43b of debt at March 2024, down from ₹3.09b a year prior. But on the other hand it also has ₹3.35b in cash, leading to a ₹914.9m net cash position.

A Look At Tega Industries' Liabilities

According to the last reported balance sheet, Tega Industries had liabilities of ₹5.26b due within 12 months, and liabilities of ₹1.72b due beyond 12 months. Offsetting these obligations, it had cash of ₹3.35b as well as receivables valued at ₹4.48b due within 12 months. So it actually has ₹846.2m more liquid assets than total liabilities.

This state of affairs indicates that Tega Industries' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹117.3b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Tega Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Tega Industries has increased its EBIT by 9.8% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Tega Industries's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Tega Industries has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Tega Industries's free cash flow amounted to 41% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tega Industries has net cash of ₹914.9m, as well as more liquid assets than liabilities. And it also grew its EBIT by 9.8% over the last year. So we don't have any problem with Tega Industries's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Tega Industries's earnings per share history for free.

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.

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