Is UFO Moviez India (NSE:UFO) Weighed On By Its Debt Load?

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. Importantly, UFO Moviez India Limited (NSE:UFO) does carry debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for UFO Moviez India

What Is UFO Moviez India's Debt?

As you can see below, at the end of September 2020, UFO Moviez India had ₹860.5m of debt, up from ₹506.2m a year ago. Click the image for more detail. But on the other hand it also has ₹1.30b in cash, leading to a ₹443.7m net cash position.

A Look At UFO Moviez India's Liabilities

The latest balance sheet data shows that UFO Moviez India had liabilities of ₹1.96b due within a year, and liabilities of ₹1.01b falling due after that. Offsetting these obligations, it had cash of ₹1.30b as well as receivables valued at ₹684.9m due within 12 months. So it has liabilities totalling ₹986.3m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since UFO Moviez India has a market capitalization of ₹2.19b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, UFO Moviez India also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since UFO Moviez India 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 UFO Moviez India had a loss before interest and tax, and actually shrunk its revenue by 72%, to ₹1.6b. That makes us nervous, to say the least.

So How Risky Is UFO Moviez India?

Although UFO Moviez India had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₹42m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for UFO Moviez India you should be aware of, and 1 of them is concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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