These 4 Measures Indicate That Bliss GVS Pharma (NSE:BLISSGVS) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Bliss GVS Pharma Limited (NSE:BLISSGVS) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bliss GVS Pharma

How Much Debt Does Bliss GVS Pharma Carry?

As you can see below, Bliss GVS Pharma had ₹998.4m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds ₹1.40b in cash, so it actually has ₹405.3m net cash.

How Strong Is Bliss GVS Pharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bliss GVS Pharma had liabilities of ₹1.60b due within 12 months and liabilities of ₹510.6m due beyond that. Offsetting this, it had ₹1.40b in cash and ₹4.18b in receivables that were due within 12 months. So it actually has ₹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. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Bliss GVS Pharma has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Bliss GVS Pharma has boosted its EBIT by 62%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Bliss GVS Pharma 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Bliss GVS Pharma 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. Looking at the most recent three years, Bliss GVS Pharma recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Bliss GVS Pharma has net cash of ₹405.3m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 62% over the last year. So we don't think Bliss GVS Pharma's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Bliss GVS Pharma (of which 1 is potentially serious!) 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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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.