TTK Prestige (NSE:TTKPRESTIG) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, '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. We can see that TTK Prestige Limited (NSE:TTKPRESTIG) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for TTK Prestige

How Much Debt Does TTK Prestige Carry?

As you can see below, TTK Prestige had ₹403.8m of debt at March 2021, down from ₹558.5m a year prior. However, it does have ₹5.82b in cash offsetting this, leading to net cash of ₹5.41b.

How Strong Is TTK Prestige's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TTK Prestige had liabilities of ₹4.22b due within 12 months and liabilities of ₹1.11b due beyond that. On the other hand, it had cash of ₹5.82b and ₹2.94b worth of receivables due within a year. So it can boast ₹3.43b more liquid assets than total liabilities.

This short term liquidity is a sign that TTK Prestige could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, TTK Prestige boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, TTK Prestige grew its EBIT by 27% 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 ultimately the future profitability of the business will decide if TTK Prestige can strengthen its balance sheet over time. 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. During the last three years, TTK Prestige produced sturdy free cash flow equating to 62% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that TTK Prestige has net cash of ₹5.41b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 27% over the last year. So we don't think TTK Prestige's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for TTK Prestige you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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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