Does Banka BioLoo (NSE:BANKA) Have A 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 Banka BioLoo Limited (NSE:BANKA) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Banka BioLoo

How Much Debt Does Banka BioLoo Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Banka BioLoo had ₹323.9m of debt, an increase on ₹222.2m, over one year. However, because it has a cash reserve of ₹51.9m, its net debt is less, at about ₹271.9m.

How Healthy Is Banka BioLoo's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Banka BioLoo had liabilities of ₹327.5m due within 12 months and liabilities of ₹114.4m due beyond that. Offsetting these obligations, it had cash of ₹51.9m as well as receivables valued at ₹248.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹142.0m.

While this might seem like a lot, it is not so bad since Banka BioLoo has a market capitalization of ₹687.8m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Banka BioLoo'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.

In the last year Banka BioLoo wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to ₹557m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Banka BioLoo's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₹40m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₹64m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Banka BioLoo is showing 3 warning signs in our investment analysis , you should know about...

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.