Noida Toll Bridge (NSE:NOIDATOLL) Is Carrying A Fair Bit Of Debt

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.' 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. Importantly, Noida Toll Bridge Company Limited (NSE:NOIDATOLL) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Noida Toll Bridge

What Is Noida Toll Bridge's Debt?

You can click the graphic below for the historical numbers, but it shows that Noida Toll Bridge had ₹667.1m of debt in September 2021, down from ₹767.7m, one year before. However, because it has a cash reserve of ₹137.9m, its net debt is less, at about ₹529.2m.

How Healthy Is Noida Toll Bridge's Balance Sheet?

According to the last reported balance sheet, Noida Toll Bridge had liabilities of ₹1.25b due within 12 months, and liabilities of ₹70.5m due beyond 12 months. On the other hand, it had cash of ₹137.9m and ₹111.2m worth of receivables due within a year. So it has liabilities totalling ₹1.07b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of ₹1.44b, so it does suggest shareholders should keep an eye on Noida Toll Bridge's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Noida Toll Bridge's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Noida Toll Bridge wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to ₹180m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Noida Toll Bridge still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₹377m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₹413k of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Noida Toll Bridge (1 shouldn't be ignored!) 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.

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.

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