Syngene International (NSE:SYNGENE) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Syngene International Limited (NSE:SYNGENE) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Syngene International

What Is Syngene International's Net Debt?

The image below, which you can click on for greater detail, shows that Syngene International had debt of ₹8.15b at the end of March 2023, a reduction from ₹10.2b over a year. However, its balance sheet shows it holds ₹13.6b in cash, so it actually has ₹5.41b net cash.

How Healthy Is Syngene International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Syngene International had liabilities of ₹11.9b due within 12 months and liabilities of ₹10.2b due beyond that. Offsetting this, it had ₹13.6b in cash and ₹5.85b in receivables that were due within 12 months. So it has liabilities totalling ₹2.72b more than its cash and near-term receivables, combined.

This state of affairs indicates that Syngene International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹322.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Syngene International 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 Syngene International has boosted its EBIT by 45%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Syngene International can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Syngene International 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. Looking at the most recent three years, Syngene International recorded free cash flow of 43% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Syngene International has ₹5.41b in net cash. And it impressed us with its EBIT growth of 45% over the last year. So is Syngene International's debt a risk? It doesn't seem so to us. 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. For instance, we've identified 1 warning sign for Syngene International that you should be aware of.

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.