Page Industries (NSE:PAGEIND) Has A Rock Solid 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 Page Industries Limited (NSE:PAGEIND) makes use of debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Page Industries

What Is Page Industries's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Page Industries had debt of ₹2.07b, up from ₹1.86b in one year. However, it does have ₹5.96b in cash offsetting this, leading to net cash of ₹3.90b.

A Look At Page Industries' Liabilities

We can see from the most recent balance sheet that Page Industries had liabilities of ₹10.5b falling due within a year, and liabilities of ₹1.75b due beyond that. Offsetting this, it had ₹5.96b in cash and ₹1.67b in receivables that were due within 12 months. So its liabilities total ₹4.56b more than the combination of its cash and short-term receivables.

Having regard to Page Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹467.7b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Page Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Page Industries grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Page Industries'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 Page Industries 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. Over the most recent three years, Page Industries recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about Page Industries's liabilities, but we can be reassured by the fact it has has net cash of ₹3.90b. And it impressed us with free cash flow of ₹12b, being 71% of its EBIT. So is Page Industries's debt a risk? It doesn't seem so to us. 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. Be aware that Page Industries is showing 2 warning signs in our investment analysis , you should know about...

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.