Is Jagran Prakashan (NSE:JAGRAN) Using Too Much Debt?

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. We can see that Jagran Prakashan Limited (NSE:JAGRAN) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Jagran Prakashan

What Is Jagran Prakashan's Net Debt?

As you can see below, at the end of March 2023, Jagran Prakashan had ₹3.69b of debt, up from ₹2.78b a year ago. Click the image for more detail. But on the other hand it also has ₹4.65b in cash, leading to a ₹959.9m net cash position.

How Strong Is Jagran Prakashan's Balance Sheet?

According to the last reported balance sheet, Jagran Prakashan had liabilities of ₹6.88b due within 12 months, and liabilities of ₹3.39b due beyond 12 months. Offsetting these obligations, it had cash of ₹4.65b as well as receivables valued at ₹4.56b due within 12 months. So it has liabilities totalling ₹1.07b more than its cash and near-term receivables, combined.

Given Jagran Prakashan has a market capitalization of ₹19.1b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Jagran Prakashan also has more cash than debt, so we're pretty confident it can manage its debt safely.

Unfortunately, Jagran Prakashan's EBIT flopped 11% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Jagran Prakashan's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Jagran Prakashan 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. Over the last three years, Jagran Prakashan actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Jagran Prakashan's liabilities, but we can be reassured by the fact it has has net cash of ₹959.9m. The cherry on top was that in converted 157% of that EBIT to free cash flow, bringing in ₹2.4b. So we are not troubled with Jagran Prakashan's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Jagran Prakashan , and understanding them should be part of your investment process.

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.