Is Blue Dart Express (NSE:BLUEDART) Using Too Much Debt?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Blue Dart Express Limited (NSE:BLUEDART) makes use of debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Blue Dart Express

How Much Debt Does Blue Dart Express Carry?

As you can see below, Blue Dart Express had ₹2.00b of debt at September 2022, down from ₹2.75b a year prior. However, it does have ₹5.30b in cash offsetting this, leading to net cash of ₹3.30b.

A Look At Blue Dart Express' Liabilities

Zooming in on the latest balance sheet data, we can see that Blue Dart Express had liabilities of ₹13.6b due within 12 months and liabilities of ₹6.84b due beyond that. On the other hand, it had cash of ₹5.30b and ₹6.69b worth of receivables due within a year. So its liabilities total ₹8.43b more than the combination of its cash and short-term receivables.

Given Blue Dart Express has a market capitalization of ₹183.6b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Blue Dart Express boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Blue Dart Express grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Blue Dart Express has ₹3.30b in net cash. The cherry on top was that in converted 136% of that EBIT to free cash flow, bringing in ₹6.5b. So we don't think Blue Dart Express's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. 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.