Texmo Pipes and Products (NSE:TEXMOPIPES) Is Carrying A Fair Bit Of 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 note that Texmo Pipes and Products Limited (NSE:TEXMOPIPES) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Texmo Pipes and Products

What Is Texmo Pipes and Products's Debt?

You can click the graphic below for the historical numbers, but it shows that Texmo Pipes and Products had ₹301.3m of debt in March 2023, down from ₹378.2m, one year before. However, because it has a cash reserve of ₹86.7m, its net debt is less, at about ₹214.5m.

How Strong Is Texmo Pipes and Products' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Texmo Pipes and Products had liabilities of ₹741.5m due within 12 months and liabilities of ₹459.1m due beyond that. Offsetting these obligations, it had cash of ₹86.7m as well as receivables valued at ₹561.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹552.4m.

Texmo Pipes and Products has a market capitalization of ₹1.99b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Texmo Pipes and Products's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Texmo Pipes and Products wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₹6.8b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Texmo Pipes and Products had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₹345m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₹71m of cash over the last year. So to be blunt we think it is 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. For example Texmo Pipes and Products has 2 warning signs (and 1 which is potentially serious) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.