Would Texmaco Infrastructure & Holdings (NSE:TEXINFRA) Be Better Off With Less 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. We note that Texmaco Infrastructure & Holdings Limited (NSE:TEXINFRA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Texmaco Infrastructure & Holdings's Debt?

As you can see below, Texmaco Infrastructure & Holdings had ₹309.6m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₹21.4m in cash offsetting this, leading to net debt of about ₹288.2m.

How Strong Is Texmaco Infrastructure & Holdings' Balance Sheet?

We can see from the most recent balance sheet that Texmaco Infrastructure & Holdings had liabilities of ₹76.3m falling due within a year, and liabilities of ₹1.30b due beyond that. Offsetting these obligations, it had cash of ₹21.4m as well as receivables valued at ₹234.5m due within 12 months. So its liabilities total ₹1.12b more than the combination of its cash and short-term receivables.

Since publicly traded Texmaco Infrastructure & Holdings shares are worth a total of ₹13.9b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is Texmaco Infrastructure & Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

View our latest analysis for Texmaco Infrastructure & Holdings

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 ₹69m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of ₹58m into a profit. So we do think this stock is quite 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. For example, we've discovered 2 warning signs for Texmaco Infrastructure & Holdings that you should be aware of before investing here.

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.