Is Kiri Industries (NSE:KIRIINDUS) Using Too Much Debt?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Kiri Industries Limited (NSE:KIRIINDUS) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kiri Industries

What Is Kiri Industries's Debt?

As you can see below, at the end of September 2022, Kiri Industries had ₹430.6m of debt, up from ₹278.9m a year ago. Click the image for more detail. However, it does have ₹487.3m in cash offsetting this, leading to net cash of ₹56.7m.

How Strong Is Kiri Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kiri Industries had liabilities of ₹4.41b due within 12 months and liabilities of ₹484.8m due beyond that. On the other hand, it had cash of ₹487.3m and ₹2.64b worth of receivables due within a year. So its liabilities total ₹1.77b more than the combination of its cash and short-term receivables.

Of course, Kiri Industries has a market capitalization of ₹17.4b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Kiri Industries boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Kiri 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.

Over 12 months, Kiri Industries made a loss at the EBIT level, and saw its revenue drop to ₹11b, which is a fall of 21%. That makes us nervous, to say the least.

So How Risky Is Kiri Industries?

While Kiri Industries lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹2.6b. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Kiri Industries has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.