We Think Matrimony.com (NSE:MATRIMONY) Can Stay On Top Of Its 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.' 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 Matrimony.com Limited (NSE:MATRIMONY) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for Matrimony.com

What Is Matrimony.com's Debt?

As you can see below, Matrimony.com had ₹571.7m of debt at September 2024, down from ₹636.9m a year prior. But on the other hand it also has ₹3.36b in cash, leading to a ₹2.79b net cash position.

How Strong Is Matrimony.com's Balance Sheet?

We can see from the most recent balance sheet that Matrimony.com had liabilities of ₹1.67b falling due within a year, and liabilities of ₹398.3m due beyond that. Offsetting these obligations, it had cash of ₹3.36b as well as receivables valued at ₹2.80m due within 12 months. So it actually has ₹1.29b more liquid assets than total liabilities.

This short term liquidity is a sign that Matrimony.com could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Matrimony.com has more cash than debt is arguably a good indication that it can manage its debt safely.

But the bad news is that Matrimony.com has seen its EBIT plunge 11% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Matrimony.com'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Matrimony.com 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, Matrimony.com 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 Matrimony.com has net cash of ₹2.79b, as well as more liquid assets than liabilities. The cherry on top was that in converted 118% of that EBIT to free cash flow, bringing in ₹456m. So we don't think Matrimony.com's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Matrimony.com, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.