Is Manaksia (NSE:MANAKSIA) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Manaksia Limited (NSE:MANAKSIA) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Manaksia

What Is Manaksia's Net Debt?

As you can see below, at the end of September 2021, Manaksia had ₹708.3m of debt, up from ₹310.5m a year ago. Click the image for more detail. However, its balance sheet shows it holds ₹7.55b in cash, so it actually has ₹6.84b net cash.

A Look At Manaksia's Liabilities

Zooming in on the latest balance sheet data, we can see that Manaksia had liabilities of ₹2.70b due within 12 months and liabilities of ₹375.8m due beyond that. On the other hand, it had cash of ₹7.55b and ₹1.03b worth of receivables due within a year. So it can boast ₹5.51b more liquid assets than total liabilities.

This excess liquidity is a great indication that Manaksia's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Manaksia 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 Manaksia has boosted its EBIT by 87%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Manaksia will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Manaksia 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. Over the last three years, Manaksia actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While it is always sensible to investigate a company's debt, in this case Manaksia has ₹6.84b in net cash and a strong balance sheet. The cherry on top was that in converted 131% of that EBIT to free cash flow, bringing in ₹1.1b. At the end of the day we're not concerned about Manaksia's debt. 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 4 warning signs we've spotted with Manaksia (including 1 which is significant) .

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.