We Think TAKE Solutions (NSE:TAKE) Has A Fair Chunk Of Debt

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. We note that TAKE Solutions Limited (NSE:TAKE) 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for TAKE Solutions

What Is TAKE Solutions's Debt?

The image below, which you can click on for greater detail, shows that TAKE Solutions had debt of ₹4.97b at the end of September 2020, a reduction from ₹5.20b over a year. However, it does have ₹1.61b in cash offsetting this, leading to net debt of about ₹3.37b.

A Look At TAKE Solutions's Liabilities

The latest balance sheet data shows that TAKE Solutions had liabilities of ₹6.17b due within a year, and liabilities of ₹2.21b falling due after that. Offsetting these obligations, it had cash of ₹1.61b as well as receivables valued at ₹5.89b due within 12 months. So it has liabilities totalling ₹886.4m more than its cash and near-term receivables, combined.

Given TAKE Solutions has a market capitalization of ₹6.01b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is TAKE 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 TAKE Solutions had a loss before interest and tax, and actually shrunk its revenue by 40%, to ₹14b. To be frank that doesn't bode well.

Caveat Emptor

Not only did TAKE Solutions's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₹3.1b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 ₹4.7b. So in short it's a really risky stock. 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. Case in point: We've spotted 4 warning signs for TAKE Solutions you should be aware of, and 1 of them is a bit unpleasant.

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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