Is Jubilant Ingrevia (NSE:JUBLINGREA) Using Too Much 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.' 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 Jubilant Ingrevia Limited (NSE:JUBLINGREA) makes use of 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 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Jubilant Ingrevia

How Much Debt Does Jubilant Ingrevia Carry?

You can click the graphic below for the historical numbers, but it shows that Jubilant Ingrevia had ₹7.13b of debt in September 2024, down from ₹7.57b, one year before. However, it also had ₹626.2m in cash, and so its net debt is ₹6.50b.

How Strong Is Jubilant Ingrevia's Balance Sheet?

The latest balance sheet data shows that Jubilant Ingrevia had liabilities of ₹13.5b due within a year, and liabilities of ₹6.78b falling due after that. On the other hand, it had cash of ₹626.2m and ₹6.09b worth of receivables due within a year. So its liabilities total ₹13.5b more than the combination of its cash and short-term receivables.

Given Jubilant Ingrevia has a market capitalization of ₹132.0b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Jubilant Ingrevia can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jubilant Ingrevia had a loss before interest and tax, and actually shrunk its revenue by 6.5%, to ₹41b. We would much prefer see growth.

Caveat Emptor

Importantly, Jubilant Ingrevia had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹1.5b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of ₹2.1b and a profit of ₹1.8b. So one might argue that there's still a chance it can get things on the right track. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jubilant Ingrevia's profit, revenue, and operating cashflow have changed over the last few years.

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.