These 4 Measures Indicate That TTK Prestige (NSE:TTKPRESTIG) Is Using Debt Reasonably Well

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.' 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. As with many other companies TTK Prestige Limited (NSE:TTKPRESTIG) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for TTK Prestige

What Is TTK Prestige's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 TTK Prestige had ₹468.6m of debt, an increase on ₹407.5m, over one year. However, it does have ₹10.1b in cash offsetting this, leading to net cash of ₹9.61b.

How Strong Is TTK Prestige's Balance Sheet?

The latest balance sheet data shows that TTK Prestige had liabilities of ₹5.07b due within a year, and liabilities of ₹1.47b falling due after that. Offsetting these obligations, it had cash of ₹10.1b as well as receivables valued at ₹3.17b due within 12 months. So it can boast ₹6.70b more liquid assets than total liabilities.

This surplus suggests that TTK Prestige has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that TTK Prestige has more cash than debt is arguably a good indication that it can manage its debt safely.

The modesty of its debt load may become crucial for TTK Prestige if management cannot prevent a repeat of the 22% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. 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 TTK Prestige's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. TTK Prestige may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, TTK Prestige recorded free cash flow worth 65% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case TTK Prestige has ₹9.61b in net cash and a decent-looking balance sheet. So we are not troubled with TTK Prestige's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - TTK Prestige has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com