Does BLS International Services (NSE:BLS) Have A Healthy Balance Sheet?

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 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. Importantly, BLS International Services Limited (NSE:BLS) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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

What Is BLS International Services's Debt?

As you can see below, at the end of March 2024, BLS International Services had ₹306.0m of debt, up from ₹65.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds ₹9.87b in cash, so it actually has ₹9.56b net cash.

How Healthy Is BLS International Services' Balance Sheet?

According to the last reported balance sheet, BLS International Services had liabilities of ₹1.45b due within 12 months, and liabilities of ₹301.3m due beyond 12 months. Offsetting this, it had ₹9.87b in cash and ₹862.1m in receivables that were due within 12 months. So it actually has ₹8.98b more liquid assets than total liabilities.

This surplus suggests that BLS International Services has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, BLS International Services boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, BLS International Services grew its EBIT by 46% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since BLS International Services will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 85% 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 ₹9.56b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹2.9b, being 85% of its EBIT. So is BLS International Services's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - BLS International Services has 1 warning sign 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.