Navin Fluorine International (NSE:NAVINFLUOR) Has A Pretty Healthy Balance Sheet

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.' 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. Importantly, Navin Fluorine International Limited (NSE:NAVINFLUOR) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Navin Fluorine International

How Much Debt Does Navin Fluorine International Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Navin Fluorine International had ₹1.04b of debt, an increase on ₹28.7m, over one year. But it also has ₹2.00b in cash to offset that, meaning it has ₹955.5m net cash.

How Healthy Is Navin Fluorine International's Balance Sheet?

We can see from the most recent balance sheet that Navin Fluorine International had liabilities of ₹3.84b falling due within a year, and liabilities of ₹1.57b due beyond that. Offsetting these obligations, it had cash of ₹2.00b as well as receivables valued at ₹3.58b due within 12 months. So it actually has ₹169.3m more liquid assets than total liabilities.

This state of affairs indicates that Navin Fluorine International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹181.0b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Navin Fluorine International has more cash than debt is arguably a good indication that it can manage its debt safely.

Also good is that Navin Fluorine International grew its EBIT at 11% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Navin Fluorine International 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Navin Fluorine International has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Navin Fluorine International burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Navin Fluorine International has net cash of ₹955.5m, as well as more liquid assets than liabilities. And it also grew its EBIT by 11% over the last year. So we don't have any problem with Navin Fluorine International's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Navin Fluorine International (of which 1 doesn't sit too well with us!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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

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.