Does Aurionpro Solutions (NSE:AURIONPRO) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Aurionpro Solutions Limited (NSE:AURIONPRO) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Aurionpro Solutions

What Is Aurionpro Solutions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Aurionpro Solutions had ₹319.3m of debt in September 2024, down from ₹1.08b, one year before. But it also has ₹3.32b in cash to offset that, meaning it has ₹3.00b net cash.

How Healthy Is Aurionpro Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aurionpro Solutions had liabilities of ₹3.38b due within 12 months and liabilities of ₹405.2m due beyond that. On the other hand, it had cash of ₹3.32b and ₹3.19b worth of receivables due within a year. So it actually has ₹2.73b more liquid assets than total liabilities.

This surplus suggests that Aurionpro Solutions has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Aurionpro Solutions boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Aurionpro Solutions grew its EBIT by 23% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Aurionpro Solutions'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Aurionpro Solutions has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Considering the last three years, Aurionpro Solutions actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Aurionpro Solutions has net cash of ₹3.00b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 23% over the last year. So we don't have any problem with Aurionpro Solutions's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Aurionpro Solutions's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.