Does SORIL Infra Resources (NSE:SORILINFRA) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies SORIL Infra Resources Limited (NSE:SORILINFRA) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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.

See our latest analysis for SORIL Infra Resources

How Much Debt Does SORIL Infra Resources Carry?

The image below, which you can click on for greater detail, shows that SORIL Infra Resources had debt of ₹3.32b at the end of March 2022, a reduction from ₹3.55b over a year. On the flip side, it has ₹275.1m in cash leading to net debt of about ₹3.04b.

How Strong Is SORIL Infra Resources' Balance Sheet?

We can see from the most recent balance sheet that SORIL Infra Resources had liabilities of ₹3.47b falling due within a year, and liabilities of ₹610.5m due beyond that. Offsetting this, it had ₹275.1m in cash and ₹4.71b in receivables that were due within 12 months. So it can boast ₹905.8m more liquid assets than total liabilities.

This surplus liquidity suggests that SORIL Infra Resources' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since SORIL Infra Resources will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year SORIL Infra Resources had a loss before interest and tax, and actually shrunk its revenue by 5.3%, to ₹1.6b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months SORIL Infra Resources produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹158m at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for SORIL Infra Resources (of which 1 is a bit concerning!) 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.