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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Godrej Properties Limited (NSE:GODREJPROP) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Godrej Properties

What Is Godrej Properties's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Godrej Properties had ₹45.4b of debt, an increase on ₹37.1b, over one year. However, it does have ₹43.9b in cash offsetting this, leading to net debt of about ₹1.57b.

How Healthy Is Godrej Properties' Balance Sheet?

We can see from the most recent balance sheet that Godrej Properties had liabilities of ₹67.7b falling due within a year, and liabilities of ₹11.6b due beyond that. Offsetting these obligations, it had cash of ₹43.9b as well as receivables valued at ₹33.6b due within 12 months. So it has liabilities totalling ₹1.82b more than its cash and near-term receivables, combined.

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 ₹609.2b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Godrej Properties has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Godrej Properties can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Godrej Properties had a loss before interest and tax, and actually shrunk its revenue by 59%, to ₹7.8b. To be frank that doesn't bode well.

Caveat Emptor

Not only did Godrej Properties's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₹3.6b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₹8.0b of cash over the last year. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Godrej Properties has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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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