Shreyans Industries (NSE:SHREYANIND) Has Debt But No Earnings; Should You Worry?

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.' 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. We can see that Shreyans Industries Limited (NSE:SHREYANIND) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Shreyans Industries

What Is Shreyans Industries's Net Debt?

As you can see below, Shreyans Industries had ₹596.0m of debt at March 2022, down from ₹629.7m a year prior. But on the other hand it also has ₹981.6m in cash, leading to a ₹385.7m net cash position.

How Strong Is Shreyans Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shreyans Industries had liabilities of ₹1.46b due within 12 months and liabilities of ₹534.4m due beyond that. Offsetting this, it had ₹981.6m in cash and ₹324.9m in receivables that were due within 12 months. So its liabilities total ₹687.3m more than the combination of its cash and short-term receivables.

Shreyans Industries has a market capitalization of ₹1.21b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Shreyans Industries boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shreyans Industries 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.

In the last year Shreyans Industries wasn't profitable at an EBIT level, but managed to grow its revenue by 59%, to ₹5.8b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Shreyans Industries?

While Shreyans Industries lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹100m. 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. The good news for Shreyans Industries shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 5 warning signs we've spotted with Shreyans Industries (including 1 which is a bit concerning) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.