Borosil Renewables (NSE:BORORENEW) 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. As with many other companies Borosil Renewables Limited (NSE:BORORENEW) 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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Borosil Renewables

What Is Borosil Renewables's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Borosil Renewables had ₹5.53b of debt, an increase on ₹4.79b, over one year. However, it also had ₹968.9m in cash, and so its net debt is ₹4.56b.

How Strong Is Borosil Renewables' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Borosil Renewables had liabilities of ₹3.68b due within 12 months and liabilities of ₹4.17b due beyond that. On the other hand, it had cash of ₹968.9m and ₹1.64b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹5.24b.

Of course, Borosil Renewables has a market capitalization of ₹72.3b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Borosil Renewables 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.

Over 12 months, Borosil Renewables reported revenue of ₹14b, which is a gain of 3.5%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Borosil Renewables had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹846m 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. Another cause for caution is that is bled ₹2.0b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. For instance, we've identified 2 warning signs for Borosil Renewables that you should be aware of.

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.