We Think Whirlpool of India (NSE:WHIRLPOOL) Can Manage Its Debt With Ease

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.' 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 Whirlpool of India Limited (NSE:WHIRLPOOL) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Whirlpool of India

What Is Whirlpool of India's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Whirlpool of India had ₹508.3m of debt, an increase on ₹194.6m, over one year. But it also has ₹20.6b in cash to offset that, meaning it has ₹20.1b net cash.

A Look At Whirlpool of India's Liabilities

The latest balance sheet data shows that Whirlpool of India had liabilities of ₹18.9b due within a year, and liabilities of ₹2.98b falling due after that. Offsetting this, it had ₹20.6b in cash and ₹4.60b in receivables that were due within 12 months. So it actually has ₹3.30b more liquid assets than total liabilities.

This state of affairs indicates that Whirlpool of India's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹276.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Whirlpool of India boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Whirlpool of India has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Whirlpool of India will need earnings to service that debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Whirlpool of India 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. During the last three years, Whirlpool of India produced sturdy free cash flow equating to 63% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Whirlpool of India has net cash of ₹20.1b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 39% over the last year. So is Whirlpool of India's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Whirlpool of India's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.
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