Is Ganesh Housing (NSE:GANESHHOUC) A Risky Investment?

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.' 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 Ganesh Housing Corporation Limited (NSE:GANESHHOUC) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Ganesh Housing

What Is Ganesh Housing's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Ganesh Housing had debt of ₹260.4m, up from ₹35.7m in one year. But it also has ₹2.31b in cash to offset that, meaning it has ₹2.05b net cash.

How Strong Is Ganesh Housing's Balance Sheet?

According to the last reported balance sheet, Ganesh Housing had liabilities of ₹1.93b due within 12 months, and liabilities of ₹256.4m due beyond 12 months. Offsetting this, it had ₹2.31b in cash and ₹4.79b in receivables that were due within 12 months. So it can boast ₹4.91b more liquid assets than total liabilities.

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

Also positive, Ganesh Housing grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Ganesh Housing's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Ganesh Housing 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. During the last three years, Ganesh Housing produced sturdy free cash flow equating to 60% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Ganesh Housing has ₹2.05b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 25% over the last year. So we don't think Ganesh Housing's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Ganesh Housing is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.