Affle (India) (NSE:AFFLE) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Affle (India) Limited (NSE:AFFLE) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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 Affle (India)

What Is Affle (India)'s Debt?

As you can see below, Affle (India) had ₹1.06b of debt at March 2023, down from ₹1.49b a year prior. But it also has ₹7.80b in cash to offset that, meaning it has ₹6.74b net cash.

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

The latest balance sheet data shows that Affle (India) had liabilities of ₹4.03b due within a year, and liabilities of ₹1.40b falling due after that. Offsetting this, it had ₹7.80b in cash and ₹3.55b in receivables that were due within 12 months. So it actually has ₹5.91b 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. Simply put, the fact that Affle (India) has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that Affle (India) grew its EBIT by 16% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Affle (India) 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. While Affle (India) 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. Over the most recent three years, Affle (India) recorded free cash flow worth 64% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 ₹6.74b, as well as more liquid assets than liabilities. So is Affle (India)'s debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Affle (India), you may well want to click here to check an interactive graph of its earnings per share history.

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.