Is Uniphos Enterprises (NSE:UNIENTER) Weighed On By Its Debt Load?

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, Uniphos Enterprises Limited (NSE:UNIENTER) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Uniphos Enterprises

What Is Uniphos Enterprises's Debt?

As you can see below, at the end of September 2024, Uniphos Enterprises had ₹400.0m of debt, up from none a year ago. Click the image for more detail. However, it does have ₹537.5m in cash offsetting this, leading to net cash of ₹137.5m.

How Healthy Is Uniphos Enterprises' Balance Sheet?

According to the last reported balance sheet, Uniphos Enterprises had liabilities of ₹144.6m due within 12 months, and liabilities of ₹1.02b due beyond 12 months. On the other hand, it had cash of ₹537.5m and ₹107.5m worth of receivables due within a year. So it has liabilities totalling ₹520.5m more than its cash and near-term receivables, combined.

Given Uniphos Enterprises has a market capitalization of ₹11.6b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Uniphos Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Uniphos Enterprises's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Uniphos Enterprises managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Uniphos Enterprises?

While Uniphos Enterprises lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹30m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 Uniphos Enterprises has 2 warning signs (and 1 which is significant) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.