Affle (India) (NSE:AFFLE) Has A Rock Solid 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. As with many other companies Affle (India) Limited (NSE:AFFLE) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Affle (India)

What Is Affle (India)'s Debt?

As you can see below, Affle (India) had ₹1.03b of debt at March 2023, down from ₹1.48b a year prior. But it also has ₹7.80b in cash to offset that, meaning it has ₹6.76b net cash.

How Healthy Is Affle (India)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Affle (India) had liabilities of ₹4.03b due within 12 months and liabilities of ₹1.40b due beyond that. On the other hand, it had cash of ₹7.80b and ₹3.50b worth of receivables due within a year. So it can boast ₹5.86b more liquid assets than total liabilities.

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

On top of that, Affle (India) grew its EBIT by 63% over the last twelve months, and that growth will make it easier to handle its 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 Affle (India) 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. Affle (India) 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. During the last three years, Affle (India) produced sturdy free cash flow equating to 61% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Affle (India) has net cash of ₹6.76b, as well as more liquid assets than liabilities. And we liked the look of last year's 63% year-on-year EBIT growth. So we don't think Affle (India)'s use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Affle (India)'s earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.