Does Symphony (NSE:SYMPHONY) 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. Importantly, Symphony Limited (NSE:SYMPHONY) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Symphony

How Much Debt Does Symphony Carry?

As you can see below, at the end of September 2021, Symphony had ₹2.02b of debt, up from ₹1.89b a year ago. Click the image for more detail. But it also has ₹5.02b in cash to offset that, meaning it has ₹3.00b net cash.

A Look At Symphony's Liabilities

According to the last reported balance sheet, Symphony had liabilities of ₹3.38b due within 12 months, and liabilities of ₹1.65b due beyond 12 months. Offsetting this, it had ₹5.02b in cash and ₹580.0m in receivables that were due within 12 months. So it actually has ₹570.0m more liquid assets than total liabilities.

Having regard to Symphony's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹66.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Symphony has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that Symphony has been able to increase its EBIT by 29% in twelve months, making it easier to pay down debt. 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 Symphony'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, a company can only pay off debt with cold hard cash, not accounting profits. While Symphony 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, Symphony recorded free cash flow worth 69% 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

While it is always sensible to investigate a company's debt, in this case Symphony has ₹3.00b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 29% over the last year. So is Symphony'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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Symphony .

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.

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.

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