Bliss GVS Pharma (NSE:BLISSGVS) Has A Pretty Healthy Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Bliss GVS Pharma Limited (NSE:BLISSGVS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bliss GVS Pharma

What Is Bliss GVS Pharma's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Bliss GVS Pharma had debt of ₹1.25b, up from ₹984.9m in one year. But on the other hand it also has ₹1.33b in cash, leading to a ₹76.6m net cash position.

How Healthy Is Bliss GVS Pharma's Balance Sheet?

According to the last reported balance sheet, Bliss GVS Pharma had liabilities of ₹2.39b due within 12 months, and liabilities of ₹574.2m due beyond 12 months. On the other hand, it had cash of ₹1.33b and ₹5.11b worth of receivables due within a year. So it can boast ₹3.47b more liquid assets than total liabilities.

This surplus suggests that Bliss GVS Pharma is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Bliss GVS Pharma boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Bliss GVS Pharma's saving grace is its low debt levels, because its EBIT has tanked 31% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Bliss GVS Pharma 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Bliss GVS Pharma may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Bliss GVS Pharma reported free cash flow worth 14% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing up

While it is always sensible to investigate a company's debt, in this case Bliss GVS Pharma has ₹76.6m in net cash and a decent-looking balance sheet. So we are not troubled with Bliss GVS Pharma's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Bliss GVS Pharma's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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