We Think Texmaco Infrastructure & Holdings (NSE:TEXINFRA) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Texmaco Infrastructure & Holdings Limited (NSE:TEXINFRA) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Texmaco Infrastructure & Holdings

What Is Texmaco Infrastructure & Holdings's Debt?

The chart below, which you can click on for greater detail, shows that Texmaco Infrastructure & Holdings had ₹297.8m in debt in March 2023; about the same as the year before. However, it does have ₹17.1m in cash offsetting this, leading to net debt of about ₹280.6m.

A Look At Texmaco Infrastructure & Holdings' Liabilities

According to the last reported balance sheet, Texmaco Infrastructure & Holdings had liabilities of ₹57.0m due within 12 months, and liabilities of ₹367.3m due beyond 12 months. Offsetting these obligations, it had cash of ₹17.1m as well as receivables valued at ₹412.7m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Texmaco Infrastructure & Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹11.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Texmaco Infrastructure & Holdings will need earnings to service that debt. 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

Not only did Texmaco Infrastructure & Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₹40m at the EBIT level. 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. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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. 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.