Does Aditya Birla Fashion and Retail (NSE:ABFRL) 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 note that Aditya Birla Fashion and Retail Limited (NSE:ABFRL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Aditya Birla Fashion and Retail

How Much Debt Does Aditya Birla Fashion and Retail Carry?

As you can see below, at the end of March 2024, Aditya Birla Fashion and Retail had ₹42.1b of debt, up from ₹23.1b a year ago. Click the image for more detail. On the flip side, it has ₹13.3b in cash leading to net debt of about ₹28.7b.

How Healthy Is Aditya Birla Fashion and Retail's Balance Sheet?

According to the last reported balance sheet, Aditya Birla Fashion and Retail had liabilities of ₹86.0b due within 12 months, and liabilities of ₹90.9b due beyond 12 months. Offsetting this, it had ₹13.3b in cash and ₹12.9b in receivables that were due within 12 months. So its liabilities total ₹150.7b more than the combination of its cash and short-term receivables.

Aditya Birla Fashion and Retail has a market capitalization of ₹332.9b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Aditya Birla Fashion and Retail's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Aditya Birla Fashion and Retail reported revenue of ₹140b, which is a gain of 13%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Aditya Birla Fashion and Retail produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹2.0b at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₹6.3b 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Aditya Birla Fashion and Retail you should be aware of.

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.

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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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