Jagran Prakashan (NSE:JAGRAN) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Jagran Prakashan Limited (NSE:JAGRAN) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Jagran Prakashan

What Is Jagran Prakashan's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Jagran Prakashan had ₹2.78b of debt in March 2022, down from ₹3.14b, one year before. But on the other hand it also has ₹2.83b in cash, leading to a ₹47.7m net cash position.

How Healthy Is Jagran Prakashan's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jagran Prakashan had liabilities of ₹3.74b due within 12 months and liabilities of ₹4.49b due beyond that. Offsetting these obligations, it had cash of ₹2.83b as well as receivables valued at ₹4.58b due within 12 months. So its liabilities total ₹827.6m more than the combination of its cash and short-term receivables.

Given Jagran Prakashan has a market capitalization of ₹16.5b, 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. Despite its noteworthy liabilities, Jagran Prakashan boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Jagran Prakashan grew its EBIT by 120% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. 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 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 Jagran Prakashan 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 last three years, Jagran Prakashan actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Jagran Prakashan has ₹47.7m in net cash. And it impressed us with free cash flow of ₹3.1b, being 169% of its EBIT. So we don't think Jagran Prakashan's use of debt is risky. Another factor that would give us confidence in Jagran Prakashan would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.