Is Tanla Platforms (NSE:TANLA) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Tanla Platforms Limited (NSE:TANLA) does carry debt. But should shareholders be worried about its use of debt?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out 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 at March 2022 Tanla Platforms had debt of ₹535.3m, up from ₹43.5m in one year. But it also has ₹8.62b in cash to offset that, meaning it has ₹8.09b net cash.

A Look At Tanla Platforms' Liabilities

We can see from the most recent balance sheet that Tanla Platforms had liabilities of ₹9.88b falling due within a year, and liabilities of ₹526.3m due beyond that. Offsetting these obligations, it had cash of ₹8.62b as well as receivables valued at ₹9.72b due within 12 months. So it can boast ₹7.94b 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. Succinctly put, Tanla Platforms boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Tanla Platforms has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. 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. Tanla Platforms may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Tanla Platforms recorded free cash flow worth a fulsome 87% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Tanla Platforms has ₹8.09b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 87% of that EBIT to free cash flow, bringing in ₹4.2b. So we don't think Tanla Platforms's use of debt is 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. For example Tanla Platforms has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.