Does Simbhaoli Sugars (NSE:SIMBHALS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Simbhaoli Sugars Limited (NSE:SIMBHALS) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Simbhaoli Sugars

What Is Simbhaoli Sugars's Debt?

As you can see below, Simbhaoli Sugars had ₹10.6b of debt at March 2022, down from ₹13.4b a year prior. However, it also had ₹667.9m in cash, and so its net debt is ₹9.91b.

How Strong Is Simbhaoli Sugars' Balance Sheet?

According to the last reported balance sheet, Simbhaoli Sugars had liabilities of ₹20.5b due within 12 months, and liabilities of ₹558.4m due beyond 12 months. On the other hand, it had cash of ₹667.9m and ₹926.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹19.5b.

This deficit casts a shadow over the ₹1.00b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Simbhaoli Sugars would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Simbhaoli Sugars will need earnings to service that debt. 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.

Over 12 months, Simbhaoli Sugars made a loss at the EBIT level, and saw its revenue drop to ₹11b, which is a fall of 7.9%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Simbhaoli Sugars produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₹203m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost ₹342m in the last year. So we think buying this stock is risky. 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. Case in point: We've spotted 1 warning sign for Simbhaoli Sugars you should be aware of.

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.