Is WinPro Industries (NSE:WINPRO) Using Too Much Debt?

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.' 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. We note that WinPro Industries Limited (NSE:WINPRO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for WinPro Industries

How Much Debt Does WinPro Industries Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 WinPro Industries had ₹178.5m of debt, an increase on ₹6.58m, over one year. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is WinPro Industries' Balance Sheet?

According to the last reported balance sheet, WinPro Industries had liabilities of ₹179.0m due within 12 months, and liabilities of ₹175.1m due beyond 12 months. Offsetting this, it had ₹1.33m in cash and ₹527.3m in receivables that were due within 12 months. So it can boast ₹174.5m more liquid assets than total liabilities.

This surplus liquidity suggests that WinPro Industries' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since WinPro Industries will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, WinPro Industries made a loss at the EBIT level, and saw its revenue drop to ₹1.2m, which is a fall of 80%. That makes us nervous, to say the least.

Caveat Emptor

While WinPro Industries's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₹641k at the EBIT level. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. 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. Case in point: We've spotted 4 warning signs for WinPro Industries you should be aware of.

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.