Does HLV (NSE:HLVLTD) Have A Healthy Balance Sheet?

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 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 HLV Limited (NSE:HLVLTD) 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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for HLV

What Is HLV's Debt?

As you can see below, HLV had ₹428.1m of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₹668.8m in cash offsetting this, leading to net cash of ₹240.7m.

How Healthy Is HLV's Balance Sheet?

We can see from the most recent balance sheet that HLV had liabilities of ₹941.7m falling due within a year, and liabilities of ₹534.6m due beyond that. Offsetting these obligations, it had cash of ₹668.8m as well as receivables valued at ₹48.8m due within 12 months. So its liabilities total ₹758.7m more than the combination of its cash and short-term receivables.

Since publicly traded HLV shares are worth a total of ₹6.84b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, HLV boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is HLV's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year HLV wasn't profitable at an EBIT level, but managed to grow its revenue by 96%, to ₹763m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is HLV?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year HLV had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₹486m of cash and made a loss of ₹425m. With only ₹240.7m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, HLV may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For instance, we've identified 3 warning signs for HLV (1 shouldn't be ignored) you should be aware of.

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.