These 4 Measures Indicate That Blue Dart Express (NSE:BLUEDART) Is Using Debt Reasonably Well

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. As with many other companies Blue Dart Express Limited (NSE:BLUEDART) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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?

As you can see below, at the end of March 2023, Blue Dart Express had ₹2.50b of debt, up from ₹2.01b a year ago. Click the image for more detail. But it also has ₹2.66b in cash to offset that, meaning it has ₹164.1m net cash.

A Look At Blue Dart Express' Liabilities

We can see from the most recent balance sheet that Blue Dart Express had liabilities of ₹11.2b falling due within a year, and liabilities of ₹9.28b due beyond that. On the other hand, it had cash of ₹2.66b and ₹6.37b worth of receivables due within a year. So it has liabilities totalling ₹11.4b more than its cash and near-term receivables, combined.

Since publicly traded Blue Dart Express shares are worth a total of ₹148.7b, 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!

But the bad news is that Blue Dart Express has seen its EBIT plunge 11% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. The balance sheet is clearly the area to focus on when you are analysing debt. 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, 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. Over the last three years, Blue Dart Express recorded free cash flow worth a fulsome 100% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Blue Dart Express has ₹164.1m in net cash. And it impressed us with free cash flow of ₹1.5b, being 100% 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. We've identified 2 warning signs with Blue Dart Express (at least 1 which is concerning) , 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.