These 4 Measures Indicate That IFGL Refractories (NSE:IFGLEXPOR) Is Using Debt Reasonably Well

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, IFGL Refractories Limited (NSE:IFGLEXPOR) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for IFGL Refractories

What Is IFGL Refractories's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2023 IFGL Refractories had debt of ₹1.75b, up from ₹1.25b in one year. However, it does have ₹1.75b in cash offsetting this, leading to net cash of ₹4.70m.

A Look At IFGL Refractories' Liabilities

Zooming in on the latest balance sheet data, we can see that IFGL Refractories had liabilities of ₹3.14b due within 12 months and liabilities of ₹1.34b due beyond that. Offsetting these obligations, it had cash of ₹1.75b as well as receivables valued at ₹3.77b due within 12 months. So it actually has ₹1.03b more liquid assets than total liabilities.

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

In addition to that, we're happy to report that IFGL Refractories has boosted its EBIT by 48%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine IFGL Refractories'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, a company can only pay off debt with cold hard cash, not accounting profits. IFGL Refractories 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. During the last three years, IFGL Refractories burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that IFGL Refractories has net cash of ₹4.70m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 48% over the last year. So we are not troubled with IFGL Refractories's debt use. 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 IFGL Refractories (of which 2 are a bit unpleasant!) you should know about.

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.