Is Texmaco Infrastructure & Holdings (NSE:TEXINFRA) Using Too Much Debt?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Texmaco Infrastructure & Holdings Limited (NSE:TEXINFRA) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Texmaco Infrastructure & Holdings

What Is Texmaco Infrastructure & Holdings's Debt?

The image below, which you can click on for greater detail, shows that at September 2023 Texmaco Infrastructure & Holdings had debt of ₹241.4m, up from ₹230.5m in one year. However, because it has a cash reserve of ₹23.6m, its net debt is less, at about ₹217.8m.

How Healthy Is Texmaco Infrastructure & Holdings' Balance Sheet?

According to the last reported balance sheet, Texmaco Infrastructure & Holdings had liabilities of ₹98.0m due within 12 months, and liabilities of ₹399.6m due beyond 12 months. On the other hand, it had cash of ₹23.6m and ₹756.3m worth of receivables due within a year. So it can boast ₹282.3m more liquid assets than total liabilities.

This state of affairs indicates that Texmaco Infrastructure & Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹14.8b company is short on cash, but still worth keeping an eye on the balance sheet. But either way, Texmaco Infrastructure & Holdings has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Texmaco Infrastructure & Holdings 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.

It seems likely shareholders hope that Texmaco Infrastructure & Holdings can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

Caveat Emptor

While Texmaco Infrastructure & Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₹44m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. And the cherry on top is that its actual free cash flow was ₹26m with statutory profit coming in at ₹26m. This one is a bit too risky for our liking. 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. To that end, you should learn about the 3 warning signs we've spotted with Texmaco Infrastructure & Holdings (including 1 which makes us a bit uncomfortable) .

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.