Health Check: How Prudently Does Ujaas Energy (NSE:UJAAS) Use Debt?

Warren Buffett famously said, '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. As with many other companies Ujaas Energy Limited (NSE:UJAAS) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

View our latest analysis for Ujaas Energy

How Much Debt Does Ujaas Energy Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Ujaas Energy had ₹1.24b of debt, an increase on ₹1.13b, over one year. On the flip side, it has ₹82.4m in cash leading to net debt of about ₹1.16b.

A Look At Ujaas Energy's Liabilities

We can see from the most recent balance sheet that Ujaas Energy had liabilities of ₹2.19b falling due within a year, and liabilities of ₹199.0m due beyond that. Offsetting these obligations, it had cash of ₹82.4m as well as receivables valued at ₹787.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.52b.

The deficiency here weighs heavily on the ₹711.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Ujaas Energy would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ujaas Energy's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Ujaas Energy reported revenue of ₹443m, which is a gain of 50%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Ujaas Energy still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₹119m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of ₹1.1b didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Ujaas Energy has 2 warning signs we think you should be aware of.

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.