Does AWL Agri Business (NSE:AWL) Have A Healthy Balance Sheet?

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 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. As with many other companies AWL Agri Business Limited (NSE:AWL) makes use of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is AWL Agri Business's Debt?

As you can see below, AWL Agri Business had ₹21.6b of debt at September 2024, down from ₹38.3b a year prior. But on the other hand it also has ₹33.0b in cash, leading to a ₹11.4b net cash position.

A Look At AWL Agri Business' Liabilities

The latest balance sheet data shows that AWL Agri Business had liabilities of ₹117.5b due within a year, and liabilities of ₹11.8b falling due after that. Offsetting this, it had ₹33.0b in cash and ₹22.7b in receivables that were due within 12 months. So it has liabilities totalling ₹73.6b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since AWL Agri Business has a market capitalization of ₹337.3b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, AWL Agri Business boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for AWL Agri Business

Pleasingly, AWL Agri Business is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 114% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AWL Agri Business'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. AWL Agri Business 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. Looking at the most recent three years, AWL Agri Business recorded free cash flow of 24% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

Although AWL Agri Business's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹11.4b. And it impressed us with its EBIT growth of 114% over the last year. So we are not troubled with AWL Agri Business's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in AWL Agri Business, you may well want to click here to check an interactive graph of its earnings per share history.

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.