Does Tanla Platforms (NSE:TANLA) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Tanla Platforms Limited (NSE:TANLA) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Tanla Platforms

What Is Tanla Platforms's Debt?

The image below, which you can click on for greater detail, shows that Tanla Platforms had debt of ₹750.4m at the end of March 2024, a reduction from ₹825.9m over a year. But on the other hand it also has ₹5.44b in cash, leading to a ₹4.69b net cash position.

A Look At Tanla Platforms' Liabilities

According to the last reported balance sheet, Tanla Platforms had liabilities of ₹10.1b due within 12 months, and liabilities of ₹613.7m due beyond 12 months. Offsetting this, it had ₹5.44b in cash and ₹13.5b in receivables that were due within 12 months. So it can boast ₹8.22b more liquid assets than total liabilities.

This surplus suggests that Tanla Platforms has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Tanla Platforms has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that Tanla Platforms grew its EBIT by 11% last year, making its debt load easier to handle. 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 Tanla Platforms'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Tanla Platforms 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. Looking at the most recent three years, Tanla Platforms recorded free cash flow of 46% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tanla Platforms has net cash of ₹4.69b, as well as more liquid assets than liabilities. And it also grew its EBIT by 11% over the last year. So is Tanla Platforms's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Tanla Platforms 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.