Blue Dart Express (NSE:BLUEDART) Has A Pretty 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.' 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. We can see that Blue Dart Express Limited (NSE:BLUEDART) does use debt in its business. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Blue Dart Express

How Much Debt Does Blue Dart Express Carry?

You can click the graphic below for the historical numbers, but it shows that Blue Dart Express had ₹1.80b of debt in September 2020, down from ₹12.6b, one year before. But it also has ₹2.37b in cash to offset that, meaning it has ₹565.8m net cash.

How Strong Is Blue Dart Express' Balance Sheet?

We can see from the most recent balance sheet that Blue Dart Express had liabilities of ₹13.0b falling due within a year, and liabilities of ₹9.34b due beyond that. Offsetting this, it had ₹2.37b in cash and ₹4.97b in receivables that were due within 12 months. So its liabilities total ₹15.0b more than the combination of its cash and short-term receivables.

Of course, Blue Dart Express has a market capitalization of ₹114.0b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Blue Dart Express also has more cash than debt, so we're pretty confident it can manage its debt safely.

Unfortunately, Blue Dart Express's EBIT flopped 14% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. 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 Blue Dart Express's ability to maintain a healthy balance sheet going forward. 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. Blue Dart Express 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, Blue Dart Express actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

Although Blue Dart Express's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹565.8m. And it impressed us with free cash flow of ₹3.6b, being 101% of its EBIT. So we don't have any problem with Blue Dart Express's use of debt. 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, we've discovered 1 warning sign for Blue Dart Express that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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