Container Corporation of India (NSE:CONCOR) Has A Pretty Healthy 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Container Corporation of India Limited (NSE:CONCOR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Container Corporation of India

What Is Container Corporation of India's Debt?

The image below, which you can click on for greater detail, shows that Container Corporation of India had debt of ₹523.3m at the end of September 2023, a reduction from ₹586.6m over a year. But on the other hand it also has ₹35.0b in cash, leading to a ₹34.4b net cash position.

How Healthy Is Container Corporation of India's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Container Corporation of India had liabilities of ₹15.0b due within 12 months and liabilities of ₹7.86b due beyond that. On the other hand, it had cash of ₹35.0b and ₹3.20b worth of receivables due within a year. So it actually has ₹15.3b more liquid assets than total liabilities.

This short term liquidity is a sign that Container Corporation of India could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Container Corporation of India has more cash than debt is arguably a good indication that it can manage its debt safely.

But the other side of the story is that Container Corporation of India saw its EBIT decline by 5.8% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Container Corporation of India 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Container Corporation of India 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 most recent three years, Container Corporation of India recorded free cash flow worth 55% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Container Corporation of India has net cash of ₹34.4b, as well as more liquid assets than liabilities. So we are not troubled with Container Corporation of India'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. For example, we've discovered 1 warning sign for Container Corporation of India that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.