Mahindra Lifespace Developers (NSE:MAHLIFE) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Mahindra Lifespace Developers Limited (NSE:MAHLIFE) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Mahindra Lifespace Developers

How Much Debt Does Mahindra Lifespace Developers Carry?

You can click the graphic below for the historical numbers, but it shows that Mahindra Lifespace Developers had ₹2.51b of debt in September 2021, down from ₹3.07b, one year before. On the flip side, it has ₹2.51b in cash leading to net debt of about ₹6.20m.

How Healthy Is Mahindra Lifespace Developers' Balance Sheet?

The latest balance sheet data shows that Mahindra Lifespace Developers had liabilities of ₹9.25b due within a year, and liabilities of ₹772.5m falling due after that. On the other hand, it had cash of ₹2.51b and ₹1.68b worth of receivables due within a year. So its liabilities total ₹5.84b more than the combination of its cash and short-term receivables.

Given Mahindra Lifespace Developers has a market capitalization of ₹36.8b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Mahindra Lifespace Developers has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Mahindra Lifespace Developers'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, Mahindra Lifespace Developers reported revenue of ₹3.3b, which is a gain of 46%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Mahindra Lifespace Developers's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at ₹735m. 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 ₹51m of cash over the last year. So to be blunt we think it is risky. For riskier companies like Mahindra Lifespace Developers I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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