Is Kakatiya Cement Sugar and Industries (NSE:KAKATCEM) Weighed On By Its Debt Load?

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.' 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 Kakatiya Cement Sugar and Industries Limited (NSE:KAKATCEM) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Kakatiya Cement Sugar and Industries

What Is Kakatiya Cement Sugar and Industries's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Kakatiya Cement Sugar and Industries had debt of ₹941.3m, up from ₹834.8m in one year. However, its balance sheet shows it holds ₹1.16b in cash, so it actually has ₹219.0m net cash.

How Strong Is Kakatiya Cement Sugar and Industries' Balance Sheet?

We can see from the most recent balance sheet that Kakatiya Cement Sugar and Industries had liabilities of ₹1.17b falling due within a year, and liabilities of ₹80.6m due beyond that. Offsetting these obligations, it had cash of ₹1.16b as well as receivables valued at ₹323.5m due within 12 months. So it can boast ₹229.8m more liquid assets than total liabilities.

This surplus suggests that Kakatiya Cement Sugar and Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Kakatiya Cement Sugar and Industries has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Kakatiya Cement Sugar and Industries will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Kakatiya Cement Sugar and Industries's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is Kakatiya Cement Sugar and Industries?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Kakatiya Cement Sugar and Industries had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₹168m and booked a ₹13m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₹219.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should learn about the 3 warning signs we've spotted with Kakatiya Cement Sugar and Industries (including 2 which can't be ignored) .

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.