Does Brand Concepts (NSE:BCONCEPTS) Have A Healthy Balance Sheet?

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.' 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. As with many other companies Brand Concepts Limited (NSE:BCONCEPTS) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Brand Concepts

What Is Brand Concepts's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Brand Concepts had ₹264.3m of debt, an increase on ₹237.9m, over one year. However, because it has a cash reserve of ₹21.5m, its net debt is less, at about ₹242.8m.

A Look At Brand Concepts' Liabilities

According to the last reported balance sheet, Brand Concepts had liabilities of ₹442.8m due within 12 months, and liabilities of ₹80.1m due beyond 12 months. On the other hand, it had cash of ₹21.5m and ₹381.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹120.5m.

This deficit isn't so bad because Brand Concepts is worth ₹282.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Brand Concepts will need earnings to service that debt. 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.

In the last year Brand Concepts had a loss before interest and tax, and actually shrunk its revenue by 40%, to ₹428m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Brand Concepts's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₹42m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₹15m of cash over the last year. So suffice it to say we consider the stock very 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. To that end, you should be aware of the 3 warning signs we've spotted with Brand Concepts .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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