Does Veranda Learning Solutions (NSE:VERANDA) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Veranda Learning Solutions Limited (NSE:VERANDA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. 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.

See our latest analysis for Veranda Learning Solutions

What Is Veranda Learning Solutions's Debt?

As you can see below, at the end of March 2024, Veranda Learning Solutions had ₹4.52b of debt, up from ₹2.31b a year ago. Click the image for more detail. On the flip side, it has ₹287.9m in cash leading to net debt of about ₹4.23b.

How Healthy Is Veranda Learning Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Veranda Learning Solutions had liabilities of ₹5.64b due within 12 months and liabilities of ₹6.93b due beyond that. Offsetting this, it had ₹287.9m in cash and ₹476.2m in receivables that were due within 12 months. So its liabilities total ₹11.8b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₹14.5b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is Veranda Learning Solutions'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 Veranda Learning Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 124%, to ₹3.6b. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, Veranda Learning Solutions still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹114m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₹797m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Veranda Learning Solutions is showing 4 warning signs in our investment analysis , and 1 of those is significant...

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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com