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 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. We note that Blue Dart Express Limited (NSE:BLUEDART) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Blue Dart Express

How Much Debt Does Blue Dart Express Carry?

The chart below, which you can click on for greater detail, shows that Blue Dart Express had ₹2.55b in debt in March 2024; about the same as the year before. But it also has ₹4.74b in cash to offset that, meaning it has ₹2.19b net cash.

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 ₹14.9b due within 12 months and liabilities of ₹6.03b due beyond that. Offsetting these obligations, it had cash of ₹4.74b as well as receivables valued at ₹6.71b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹9.49b.

Given Blue Dart Express has a market capitalization of ₹171.6b, 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. 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.

Shareholders should be aware that Blue Dart Express's EBIT was down 27% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Blue Dart Express can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. During the last three years, Blue Dart Express generated free cash flow amounting to a very robust 88% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

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 ₹2.19b. The cherry on top was that in converted 88% of that EBIT to free cash flow, bringing in ₹5.8b. So we are not troubled with Blue Dart Express's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Blue Dart Express , and understanding them should be part of your investment process.

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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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.