Here's Why Easy Trip Planners (NSE:EASEMYTRIP) Can Manage Its Debt Responsibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Easy Trip Planners Limited (NSE:EASEMYTRIP) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. 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 Easy Trip Planners

How Much Debt Does Easy Trip Planners Carry?

As you can see below, Easy Trip Planners had ₹128.2m of debt at March 2024, down from ₹826.3m a year prior. But it also has ₹1.05b in cash to offset that, meaning it has ₹917.6m net cash.

How Strong Is Easy Trip Planners' Balance Sheet?

We can see from the most recent balance sheet that Easy Trip Planners had liabilities of ₹2.45b falling due within a year, and liabilities of ₹241.8m due beyond that. On the other hand, it had cash of ₹1.05b and ₹2.40b worth of receivables due within a year. So it actually has ₹760.5m more liquid assets than total liabilities.

This state of affairs indicates that Easy Trip Planners' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹75.0b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Easy Trip Planners 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 Easy Trip Planners has boosted its EBIT by 46%, thus reducing the spectre of future debt repayments. 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 Easy Trip Planners 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. Over the last three years, Easy Trip Planners recorded negative free cash flow, in total. 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 we empathize with investors who find debt concerning, you should keep in mind that Easy Trip Planners has net cash of ₹917.6m, as well as more liquid assets than liabilities. And we liked the look of last year's 46% year-on-year EBIT growth. So we don't have any problem with Easy Trip Planners's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Easy Trip Planners , and understanding them should be part of your investment process.

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. 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.