Is Future Supply Chain Solutions (NSE:FSC) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Future Supply Chain Solutions Limited (NSE:FSC) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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

View our latest analysis for Future Supply Chain Solutions

How Much Debt Does Future Supply Chain Solutions Carry?

The image below, which you can click on for greater detail, shows that at September 2021 Future Supply Chain Solutions had debt of ₹5.37b, up from ₹2.98b in one year. Net debt is about the same, since the it doesn't have much cash.

How Strong Is Future Supply Chain Solutions' Balance Sheet?

The latest balance sheet data shows that Future Supply Chain Solutions had liabilities of ₹7.00b due within a year, and liabilities of ₹4.89b falling due after that. Offsetting this, it had ₹27.4m in cash and ₹9.33b in receivables that were due within 12 months. So it has liabilities totalling ₹2.53b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₹3.54b, so it does suggest shareholders should keep an eye on Future Supply Chain Solutions' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Future Supply Chain Solutions's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Future Supply Chain Solutions made a loss at the EBIT level, and saw its revenue drop to ₹5.6b, which is a fall of 23%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Future Supply Chain Solutions's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₹656m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of ₹1.3b into a profit. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Future Supply Chain Solutions (of which 1 shouldn't be ignored!) 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.