Astron Paper & Board Mill (NSE:ASTRON) Is Carrying A Fair Bit 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 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. As with many other companies Astron Paper & Board Mill Limited (NSE:ASTRON) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Astron Paper & Board Mill

How Much Debt Does Astron Paper & Board Mill Carry?

The image below, which you can click on for greater detail, shows that at March 2023 Astron Paper & Board Mill had debt of ₹844.4m, up from ₹764.6m in one year. On the flip side, it has ₹102.3m in cash leading to net debt of about ₹742.1m.

How Healthy Is Astron Paper & Board Mill's Balance Sheet?

According to the last reported balance sheet, Astron Paper & Board Mill had liabilities of ₹1.49b due within 12 months, and liabilities of ₹36.8m due beyond 12 months. Offsetting these obligations, it had cash of ₹102.3m as well as receivables valued at ₹862.2m due within 12 months. So its liabilities total ₹562.6m more than the combination of its cash and short-term receivables.

Astron Paper & Board Mill has a market capitalization of ₹1.23b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Astron Paper & Board Mill'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.

Over 12 months, Astron Paper & Board Mill made a loss at the EBIT level, and saw its revenue drop to ₹3.9b, which is a fall of 23%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Astron Paper & Board Mill'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 ₹244m at the EBIT level. 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 ₹239m. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Astron Paper & Board Mill (of which 2 make us uncomfortable!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.