Is Allcargo Gati (NSE:ACLGATI) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Allcargo Gati Limited (NSE:ACLGATI) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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 Allcargo Gati

How Much Debt Does Allcargo Gati Carry?

You can click the graphic below for the historical numbers, but it shows that Allcargo Gati had ₹163.7m of debt in September 2024, down from ₹1.44b, one year before. But on the other hand it also has ₹1.86b in cash, leading to a ₹1.70b net cash position.

A Look At Allcargo Gati's Liabilities

Zooming in on the latest balance sheet data, we can see that Allcargo Gati had liabilities of ₹3.04b due within 12 months and liabilities of ₹1.97b due beyond that. Offsetting these obligations, it had cash of ₹1.86b as well as receivables valued at ₹2.71b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹428.7m.

Of course, Allcargo Gati has a market capitalization of ₹11.9b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Allcargo Gati boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Allcargo Gati'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.

Over 12 months, Allcargo Gati made a loss at the EBIT level, and saw its revenue drop to ₹17b, which is a fall of 3.5%. We would much prefer see growth.

So How Risky Is Allcargo Gati?

Although Allcargo Gati had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹177m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Allcargo Gati that you should be aware of.

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.