Bhageria Industries (NSE:BHAGERIA) 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.' 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. Importantly, Bhageria Industries Limited (NSE:BHAGERIA) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Bhageria Industries

What Is Bhageria Industries's Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Bhageria Industries had debt of ₹347.9m, up from ₹314.3m in one year. But on the other hand it also has ₹500.2m in cash, leading to a ₹152.4m net cash position.

A Look At Bhageria Industries' Liabilities

The latest balance sheet data shows that Bhageria Industries had liabilities of ₹961.5m due within a year, and liabilities of ₹426.1m falling due after that. On the other hand, it had cash of ₹500.2m and ₹1.09b worth of receivables due within a year. So it actually has ₹200.6m more liquid assets than total liabilities.

This surplus suggests that Bhageria Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Bhageria Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Bhageria Industries's EBIT dived 13%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But it is Bhageria Industries'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Bhageria Industries 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. In the last three years, Bhageria Industries created free cash flow amounting to 14% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Bhageria Industries has ₹152.4m in net cash and a decent-looking balance sheet. So we are not troubled with Bhageria Industries's debt use. 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. Case in point: We've spotted 3 warning signs for Bhageria Industries 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.