Does Easy Trip Planners (NSE:EASEMYTRIP) Have A Healthy Balance Sheet?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Easy Trip Planners Limited (NSE:EASEMYTRIP) does use debt in its business. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

View our latest analysis for Easy Trip Planners

What Is Easy Trip Planners's Net Debt?

The image below, which you can click on for greater detail, shows that Easy Trip Planners had debt of ₹194.7m at the end of March 2024, a reduction from ₹868.2m over a year. But on the other hand it also has ₹1.93b in cash, leading to a ₹1.73b net cash position.

How Healthy Is Easy Trip Planners' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Easy Trip Planners had liabilities of ₹2.45b due within 12 months and liabilities of ₹241.8m due beyond that. Offsetting this, it had ₹1.93b in cash and ₹2.52b in receivables that were due within 12 months. So it actually has ₹1.76b more liquid assets than total liabilities.

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

On the other hand, Easy Trip Planners saw its EBIT drop by 2.7% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Easy Trip Planners'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Easy Trip Planners 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. Considering the last three years, Easy Trip Planners actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Easy Trip Planners has ₹1.73b in net cash and a decent-looking balance sheet. So we are not troubled with Easy Trip Planners's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Easy Trip Planners .

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.