Is Maral Overseas (NSE:MARALOVER) A Risky Investment?

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.' 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. We can see that Maral Overseas Limited (NSE:MARALOVER) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Maral Overseas

What Is Maral Overseas's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2023 Maral Overseas had debt of ₹3.29b, up from ₹2.17b in one year. However, it also had ₹79.3m in cash, and so its net debt is ₹3.21b.

How Healthy Is Maral Overseas' Balance Sheet?

We can see from the most recent balance sheet that Maral Overseas had liabilities of ₹3.47b falling due within a year, and liabilities of ₹1.45b due beyond that. On the other hand, it had cash of ₹79.3m and ₹1.02b worth of receivables due within a year. So its liabilities total ₹3.82b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₹2.41b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Maral Overseas would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Maral Overseas'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.

In the last year Maral Overseas had a loss before interest and tax, and actually shrunk its revenue by 5.2%, to ₹10b. That's not what we would hope to see.

Caveat Emptor

Importantly, Maral Overseas had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹105m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₹760m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Maral Overseas (at least 1 which is significant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.