Shree Tirupati Balajee Agro Trading (NSE:BALAJEE) Takes On Some Risk With Its Use Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 Shree Tirupati Balajee Agro Trading Company Limited (NSE:BALAJEE) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Shree Tirupati Balajee Agro Trading's Debt?

As you can see below, Shree Tirupati Balajee Agro Trading had ₹2.00b of debt at March 2025, down from ₹2.44b a year prior. However, it does have ₹61.8m in cash offsetting this, leading to net debt of about ₹1.94b.

How Strong Is Shree Tirupati Balajee Agro Trading's Balance Sheet?

According to the last reported balance sheet, Shree Tirupati Balajee Agro Trading had liabilities of ₹2.37b due within 12 months, and liabilities of ₹181.8m due beyond 12 months. Offsetting these obligations, it had cash of ₹61.8m as well as receivables valued at ₹1.05b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.44b.

This deficit isn't so bad because Shree Tirupati Balajee Agro Trading is worth ₹4.22b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt.

See our latest analysis for Shree Tirupati Balajee Agro Trading

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

While Shree Tirupati Balajee Agro Trading's debt to EBITDA ratio (3.4) suggests that it uses some debt, its interest cover is very weak, at 2.4, suggesting high leverage. So shareholders should probably be aware that interest expenses appear to have really impacted the business lately. Even more troubling is the fact that Shree Tirupati Balajee Agro Trading actually let its EBIT decrease by 9.3% over the last year. If it keeps going like that paying off its debt will be like running on a treadmill -- a lot of effort for not much advancement. When analysing debt levels, the balance sheet is the obvious place to start. But it is Shree Tirupati Balajee Agro Trading's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Shree Tirupati Balajee Agro Trading burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

We'd go so far as to say Shree Tirupati Balajee Agro Trading's conversion of EBIT to free cash flow was disappointing. But at least its level of total liabilities is not so bad. Overall, it seems to us that Shree Tirupati Balajee Agro Trading's balance sheet is really quite a risk to the business. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. To that end, you should learn about the 2 warning signs we've spotted with Shree Tirupati Balajee Agro Trading (including 1 which is concerning) .

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. 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.