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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Blue Dart Express Limited (NSE:BLUEDART) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 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.

See our latest analysis for Blue Dart Express

What Is Blue Dart Express's Net Debt?

As you can see below, Blue Dart Express had ₹2.00b of debt at March 2022, down from ₹5.96b a year prior. But it also has ₹3.92b in cash to offset that, meaning it has ₹1.92b net cash.

How Strong Is Blue Dart Express' Balance Sheet?

The latest balance sheet data shows that Blue Dart Express had liabilities of ₹12.7b due within a year, and liabilities of ₹6.84b falling due after that. Offsetting these obligations, it had cash of ₹3.92b as well as receivables valued at ₹5.80b due within 12 months. So its liabilities total ₹9.85b more than the combination of its cash and short-term receivables.

Since publicly traded Blue Dart Express shares are worth a total of ₹174.7b, it seems unlikely that this level of liabilities would be a major threat. 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, Blue Dart Express boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Blue Dart Express grew its EBIT by 124% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Blue Dart Express 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. Over the last three years, Blue Dart Express actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

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 ₹1.92b. And it impressed us with free cash flow of ₹6.9b, being 140% of its EBIT. So we don't think Blue Dart Express's use of debt is risky. 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. Be aware that Blue Dart Express is showing 1 warning sign in our investment analysis , you should know about...

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.