Does Mayur Uniquoters (NSE:MAYURUNIQ) Have A Healthy Balance Sheet?

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.' 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. We can see that Mayur Uniquoters Limited (NSE:MAYURUNIQ) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Mayur Uniquoters

What Is Mayur Uniquoters's Net Debt?

As you can see below, at the end of September 2020, Mayur Uniquoters had ₹536.4m of debt, up from ₹213.1m a year ago. Click the image for more detail. However, it does have ₹2.03b in cash offsetting this, leading to net cash of ₹1.49b.

How Strong Is Mayur Uniquoters's Balance Sheet?

We can see from the most recent balance sheet that Mayur Uniquoters had liabilities of ₹1.06b falling due within a year, and liabilities of ₹181.1m due beyond that. Offsetting these obligations, it had cash of ₹2.03b as well as receivables valued at ₹955.7m due within 12 months. So it actually has ₹1.75b more liquid assets than total liabilities.

This surplus suggests that Mayur Uniquoters has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Mayur Uniquoters boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that Mayur Uniquoters has seen its EBIT plunge 14% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Mayur Uniquoters can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Mayur Uniquoters 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. In the last three years, Mayur Uniquoters's free cash flow amounted to 20% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While it is always sensible to investigate a company's debt, in this case Mayur Uniquoters has ₹1.49b in net cash and a decent-looking balance sheet. So we don't have any problem with Mayur Uniquoters's use of debt. 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. Case in point: We've spotted 1 warning sign for Mayur Uniquoters 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.

If you decide to trade Mayur Uniquoters, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.