Does Godrej Properties (NSE:GODREJPROP) Have A Healthy Balance Sheet?

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.' 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. As with many other companies Godrej Properties Limited (NSE:GODREJPROP) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

See our latest analysis for Godrej Properties

How Much Debt Does Godrej Properties Carry?

The image below, which you can click on for greater detail, shows that at March 2021 Godrej Properties had debt of ₹45.1b, up from ₹37.1b in one year. But on the other hand it also has ₹51.8b in cash, leading to a ₹6.72b net cash position.

How Strong Is Godrej Properties' Balance Sheet?

According to the last reported balance sheet, Godrej Properties had liabilities of ₹67.7b due within 12 months, and liabilities of ₹11.6b due beyond 12 months. Offsetting this, it had ₹51.8b in cash and ₹26.8b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Godrej Properties' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹389.5b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Godrej Properties also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Godrej Properties's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Godrej Properties made a loss at the EBIT level, and saw its revenue drop to ₹7.6b, which is a fall of 69%. That makes us nervous, to say the least.

So How Risky Is Godrej Properties?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Godrej Properties had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₹8.0b of cash and made a loss of ₹1.9b. With only ₹6.72b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Godrej Properties (1 shouldn't be ignored!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

When trading Godrej Properties or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.