Texmaco Infrastructure & Holdings (NSE:TEXINFRA) Is Carrying A Fair Bit Of 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.' 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, Texmaco Infrastructure & Holdings Limited (NSE:TEXINFRA) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Texmaco Infrastructure & Holdings

How Much Debt Does Texmaco Infrastructure & Holdings Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Texmaco Infrastructure & Holdings had debt of ₹244.4m, up from ₹223.5m in one year. However, because it has a cash reserve of ₹17.6m, its net debt is less, at about ₹226.9m.

How Healthy Is Texmaco Infrastructure & Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Texmaco Infrastructure & Holdings had liabilities of ₹75.2m due within 12 months and liabilities of ₹891.2m due beyond that. Offsetting these obligations, it had cash of ₹17.6m as well as receivables valued at ₹191.0m due within 12 months. So its liabilities total ₹757.9m more than the combination of its cash and short-term receivables.

Of course, Texmaco Infrastructure & Holdings has a market capitalization of ₹17.5b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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! There's no doubt that we learn most about debt from the balance sheet. But it is Texmaco Infrastructure & Holdings'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.

Given it has no significant operating revenue at the moment, shareholders will be hoping Texmaco Infrastructure & Holdings can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Texmaco Infrastructure & Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹47m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of ₹35m and a profit of ₹54m. So one might argue that there's still a chance it can get things on the right track. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Texmaco Infrastructure & Holdings 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.

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