Bayer CropScience (NSE:BAYERCROP) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Bayer CropScience Limited (NSE:BAYERCROP) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bayer CropScience

How Much Debt Does Bayer CropScience Carry?

You can click the graphic below for the historical numbers, but it shows that Bayer CropScience had ₹334.0m of debt in September 2024, down from ₹638.0m, one year before. But it also has ₹9.80b in cash to offset that, meaning it has ₹9.47b net cash.

A Look At Bayer CropScience's Liabilities

We can see from the most recent balance sheet that Bayer CropScience had liabilities of ₹20.6b falling due within a year, and liabilities of ₹1.25b due beyond that. On the other hand, it had cash of ₹9.80b and ₹19.6b worth of receivables due within a year. So it actually has ₹7.53b more liquid assets than total liabilities.

This short term liquidity is a sign that Bayer CropScience could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Bayer CropScience boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that Bayer CropScience's load is not too heavy, because its EBIT was down 42% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Bayer CropScience'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. Bayer CropScience 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. Over the last three years, Bayer CropScience recorded free cash flow worth a fulsome 88% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Bayer CropScience has net cash of ₹9.47b, as well as more liquid assets than liabilities. The cherry on top was that in converted 88% of that EBIT to free cash flow, bringing in ₹10b. So we are not troubled with Bayer CropScience's debt use. 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 2 warning signs for Bayer CropScience you should be aware of.

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.