Blue Dart Express (NSE:BLUEDART) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Blue Dart Express Limited (NSE:BLUEDART) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Blue Dart Express

What Is Blue Dart Express's Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Blue Dart Express had debt of ₹2.75b, up from ₹1.80b in one year. But on the other hand it also has ₹3.55b in cash, leading to a ₹802.7m net cash position.

How Healthy Is Blue Dart Express' Balance Sheet?

According to the last reported balance sheet, Blue Dart Express had liabilities of ₹11.2b due within 12 months, and liabilities of ₹10.0b due beyond 12 months. Offsetting this, it had ₹3.55b in cash and ₹5.61b in receivables that were due within 12 months. So its liabilities total ₹12.1b more than the combination of its cash and short-term receivables.

Given Blue Dart Express has a market capitalization of ₹159.7b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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.

Pleasingly, Blue Dart Express is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 862% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Blue Dart Express 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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

We could understand if investors are concerned about Blue Dart Express's liabilities, but we can be reassured by the fact it has has net cash of ₹802.7m. The cherry on top was that in converted 159% of that EBIT to free cash flow, bringing in ₹7.2b. So is Blue Dart Express's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Blue Dart Express's earnings per share history for free.

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.