Does Syncom Formulations (India) (NSE:SYNCOMF) Have A 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Syncom Formulations (India) Limited (NSE:SYNCOMF) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Syncom Formulations (India)

What Is Syncom Formulations (India)'s Net Debt?

As you can see below, Syncom Formulations (India) had ₹142.5m of debt at September 2024, down from ₹800.9m a year prior. However, it does have ₹920.1m in cash offsetting this, leading to net cash of ₹777.6m.

A Look At Syncom Formulations (India)'s Liabilities

We can see from the most recent balance sheet that Syncom Formulations (India) had liabilities of ₹490.4m falling due within a year, and liabilities of ₹98.5m due beyond that. Offsetting this, it had ₹920.1m in cash and ₹882.4m in receivables that were due within 12 months. So it actually has ₹1.21b more liquid assets than total liabilities.

This short term liquidity is a sign that Syncom Formulations (India) could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Syncom Formulations (India) boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Syncom Formulations (India) has boosted its EBIT by 60%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Syncom Formulations (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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Syncom Formulations (India) 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, Syncom Formulations (India) saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Syncom Formulations (India) has ₹777.6m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 60% over the last year. So we are not troubled with Syncom Formulations (India)'s debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Syncom Formulations (India), you may well want to click here to check an interactive graph of its earnings per share history.

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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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.