These 4 Measures Indicate That Jagran Prakashan (NSE:JAGRAN) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Jagran Prakashan Limited (NSE:JAGRAN) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

View our latest analysis for Jagran Prakashan

What Is Jagran Prakashan's Debt?

The image below, which you can click on for greater detail, shows that at March 2021 Jagran Prakashan had debt of ₹2.64b, up from ₹2.25b in one year. However, its balance sheet shows it holds ₹3.96b in cash, so it actually has ₹1.32b net cash.

A Look At Jagran Prakashan's Liabilities

We can see from the most recent balance sheet that Jagran Prakashan had liabilities of ₹3.28b falling due within a year, and liabilities of ₹4.45b due beyond that. Offsetting these obligations, it had cash of ₹3.96b as well as receivables valued at ₹4.34b due within 12 months. So it actually has ₹573.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Jagran Prakashan could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Jagran Prakashan boasts net cash, so it's fair to say it does not have a heavy debt load!

Importantly, Jagran Prakashan's EBIT fell a jaw-dropping 65% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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. Happily for any shareholders, Jagran Prakashan actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Jagran Prakashan has net cash of ₹1.32b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹3.4b, being 108% of its EBIT. So we are not troubled with Jagran Prakashan's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Jagran Prakashan is showing 1 warning sign in our investment analysis , you should know about...

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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