Gokaldas Exports (NSE:GOKEX) Has A Rock Solid Balance Sheet

Warren Buffett famously said, '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. We can see that Gokaldas Exports Limited (NSE:GOKEX) does use debt in its business. 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. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Gokaldas Exports

What Is Gokaldas Exports's Net Debt?

The image below, which you can click on for greater detail, shows that Gokaldas Exports had debt of ₹354.5m at the end of March 2023, a reduction from ₹630.7m over a year. But it also has ₹3.68b in cash to offset that, meaning it has ₹3.33b net cash.

A Look At Gokaldas Exports' Liabilities

We can see from the most recent balance sheet that Gokaldas Exports had liabilities of ₹3.46b falling due within a year, and liabilities of ₹1.10b due beyond that. On the other hand, it had cash of ₹3.68b and ₹1.36b worth of receivables due within a year. So it can boast ₹480.4m more liquid assets than total liabilities.

This state of affairs indicates that Gokaldas Exports' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹26.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Gokaldas Exports 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 Gokaldas Exports has boosted its EBIT by 53%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Gokaldas Exports's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Gokaldas Exports has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Gokaldas Exports generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Gokaldas Exports has ₹3.33b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹2.3b, being 96% of its EBIT. So we don't think Gokaldas Exports'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 Gokaldas Exports's earnings per share history for free.

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.