Balaji Telefilms (NSE:BALAJITELE) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Balaji Telefilms Limited (NSE:BALAJITELE) makes use of debt. 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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Balaji Telefilms

How Much Debt Does Balaji Telefilms Carry?

The image below, which you can click on for greater detail, shows that at March 2022 Balaji Telefilms had debt of ₹451.7m, up from none in one year. On the flip side, it has ₹160.4m in cash leading to net debt of about ₹291.3m.

How Strong Is Balaji Telefilms' Balance Sheet?

We can see from the most recent balance sheet that Balaji Telefilms had liabilities of ₹2.33b falling due within a year, and liabilities of ₹5.14m due beyond that. Offsetting these obligations, it had cash of ₹160.4m as well as receivables valued at ₹1.20b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹971.9m.

Balaji Telefilms has a market capitalization of ₹4.58b, 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Balaji Telefilms will need earnings to service that debt. 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 Balaji Telefilms wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to ₹3.4b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Balaji Telefilms had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₹1.4b 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. Another cause for caution is that is bled ₹1.2b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for Balaji Telefilms you should be aware of, and 3 of them are significant.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.