Does TGB Banquets and Hotels (NSE:TGBHOTELS) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 TGB Banquets and Hotels Limited (NSE:TGBHOTELS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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.

View our latest analysis for TGB Banquets and Hotels

What Is TGB Banquets and Hotels's Debt?

You can click the graphic below for the historical numbers, but it shows that TGB Banquets and Hotels had ₹118.7m of debt in September 2020, down from ₹131.0m, one year before. However, it does have ₹6.95m in cash offsetting this, leading to net debt of about ₹111.8m.

How Strong Is TGB Banquets and Hotels's Balance Sheet?

The latest balance sheet data shows that TGB Banquets and Hotels had liabilities of ₹492.5m due within a year, and liabilities of ₹80.3m falling due after that. On the other hand, it had cash of ₹6.95m and ₹585.7m worth of receivables due within a year. So it can boast ₹19.8m more liquid assets than total liabilities.

This short term liquidity is a sign that TGB Banquets and Hotels could probably pay off its debt with ease, as its balance sheet is far from stretched. When analysing debt levels, the balance sheet is the obvious place to start. But it is TGB Banquets and Hotels'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 TGB Banquets and Hotels had a loss before interest and tax, and actually shrunk its revenue by 60%, to ₹228m. That makes us nervous, to say the least.

Caveat Emptor

Not only did TGB Banquets and Hotels's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₹12m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for TGB Banquets and Hotels (of which 3 are potentially serious!) you should know about.

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. 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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