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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Tanla Platforms Limited (NSE:TANLA) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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. 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 Tanla Platforms

What Is Tanla Platforms's Debt?

As you can see below, Tanla Platforms had ₹696.7m of debt at September 2024, down from ₹791.4m a year prior. But on the other hand it also has ₹5.27b in cash, leading to a ₹4.57b net cash position.

How Strong Is Tanla Platforms' Balance Sheet?

We can see from the most recent balance sheet that Tanla Platforms had liabilities of ₹10.2b falling due within a year, and liabilities of ₹620.9m due beyond that. On the other hand, it had cash of ₹5.27b and ₹15.2b worth of receivables due within a year. So it can boast ₹9.59b more liquid assets than total liabilities.

This short term liquidity is a sign that Tanla Platforms could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Tanla Platforms has more cash than debt is arguably a good indication that it can manage its debt safely.

On the other hand, Tanla Platforms's EBIT dived 11%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Tanla Platforms can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. In the last three years, Tanla Platforms's free cash flow amounted to 43% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Tanla Platforms has ₹4.57b in net cash and a decent-looking balance sheet. So we are not troubled with Tanla Platforms's debt use. 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. For example, we've discovered 1 warning sign for Tanla Platforms that you should be aware of before investing here.

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.