Is Country Club Hospitality & Holidays (NSE:CCHHL) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Country Club Hospitality & Holidays Limited (NSE:CCHHL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Country Club Hospitality & Holidays

What Is Country Club Hospitality & Holidays's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2021 Country Club Hospitality & Holidays had debt of ₹3.19b, up from ₹3.04b in one year. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is Country Club Hospitality & Holidays' Balance Sheet?

The latest balance sheet data shows that Country Club Hospitality & Holidays had liabilities of ₹2.18b due within a year, and liabilities of ₹2.67b falling due after that. Offsetting these obligations, it had cash of ₹59.5m as well as receivables valued at ₹412.0m due within 12 months. So it has liabilities totalling ₹4.38b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₹1.25b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Country Club Hospitality & Holidays would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Country Club Hospitality & Holidays's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Country Club Hospitality & Holidays had a loss before interest and tax, and actually shrunk its revenue by 65%, to ₹534m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Country Club Hospitality & Holidays's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₹186m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of ₹488m in the last year. So we think this stock is quite risky. We'd prefer to pass. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Country Club Hospitality & Holidays (1 shouldn't be ignored) 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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