BLS International Services (NSE:BLS) Could Easily Take On More Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 BLS International Services Limited (NSE:BLS) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BLS International Services

How Much Debt Does BLS International Services Carry?

As you can see below, at the end of September 2024, BLS International Services had ₹3.79b of debt, up from ₹217.5m a year ago. Click the image for more detail. But on the other hand it also has ₹11.1b in cash, leading to a ₹7.26b net cash position.

How Healthy Is BLS International Services' Balance Sheet?

According to the last reported balance sheet, BLS International Services had liabilities of ₹3.75b due within 12 months, and liabilities of ₹3.32b due beyond 12 months. Offsetting this, it had ₹11.1b in cash and ₹544.3m in receivables that were due within 12 months. So it can boast ₹4.53b more liquid assets than total liabilities.

This short term liquidity is a sign that BLS International Services could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BLS International Services 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 BLS International Services has boosted its EBIT by 60%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is BLS International Services'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. BLS International Services 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. During the last three years, BLS International Services generated free cash flow amounting to a very robust 95% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case BLS International Services has ₹7.26b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹4.9b, being 95% of its EBIT. So we don't think BLS International Services's use of debt is risky. 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 BLS International Services's earnings per share history for free.

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.