Does Goenka Diamond and Jewels (NSE:GOENKA) 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.' 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. As with many other companies Goenka Diamond and Jewels Limited (NSE:GOENKA) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Goenka Diamond and Jewels

What Is Goenka Diamond and Jewels's Debt?

The chart below, which you can click on for greater detail, shows that Goenka Diamond and Jewels had ₹1.81b in debt in March 2023; about the same as the year before. Net debt is about the same, since the it doesn't have much cash.

A Look At Goenka Diamond and Jewels' Liabilities

We can see from the most recent balance sheet that Goenka Diamond and Jewels had liabilities of ₹5.57b falling due within a year, and liabilities of ₹1.07m due beyond that. Offsetting these obligations, it had cash of ₹5.88m as well as receivables valued at ₹7.63b due within 12 months. So it can boast ₹2.07b more liquid assets than total liabilities.

This excess liquidity is a great indication that Goenka Diamond and Jewels' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Goenka Diamond and Jewels 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.

Over 12 months, Goenka Diamond and Jewels made a loss at the EBIT level, and saw its revenue drop to ₹17m, which is a fall of 61%. To be frank that doesn't bode well.

Caveat Emptor

While Goenka Diamond and Jewels's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₹17m. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. 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. For example - Goenka Diamond and Jewels has 4 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.