Super Spinning Mills (NSE:SUPERSPIN) Has Debt But No Earnings; Should You Worry?

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.' 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 Super Spinning Mills Limited (NSE:SUPERSPIN) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Super Spinning Mills

What Is Super Spinning Mills's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2022 Super Spinning Mills had debt of ₹382.2m, up from ₹352.9m in one year. However, because it has a cash reserve of ₹27.3m, its net debt is less, at about ₹354.9m.

A Look At Super Spinning Mills' Liabilities

The latest balance sheet data shows that Super Spinning Mills had liabilities of ₹440.0m due within a year, and liabilities of ₹312.6m falling due after that. Offsetting these obligations, it had cash of ₹27.3m as well as receivables valued at ₹27.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹697.9m.

This deficit casts a shadow over the ₹383.4m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Super Spinning Mills would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Super Spinning Mills'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.

Over 12 months, Super Spinning Mills reported revenue of ₹926m, which is a gain of 8.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Super Spinning Mills produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₹74m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₹128m in negative free cash flow over the last year. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Super Spinning Mills (2 are a bit concerning) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.