We Think Noida Toll Bridge (NSE:NOIDATOLL) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Noida Toll Bridge Company Limited (NSE:NOIDATOLL) does carry debt. But the more important question is: how much risk is that debt creating?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Noida Toll Bridge

How Much Debt Does Noida Toll Bridge Carry?

The chart below, which you can click on for greater detail, shows that Noida Toll Bridge had ₹667.1m in debt in September 2023; about the same as the year before. However, it also had ₹384.1m in cash, and so its net debt is ₹283.0m.

A Look At Noida Toll Bridge's Liabilities

The latest balance sheet data shows that Noida Toll Bridge had liabilities of ₹1.25b due within a year, and liabilities of ₹192.7m falling due after that. Offsetting this, it had ₹384.1m in cash and ₹16.8m in receivables that were due within 12 months. So its liabilities total ₹1.04b more than the combination of its cash and short-term receivables.

Noida Toll Bridge has a market capitalization of ₹1.89b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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.

Over 12 months, Noida Toll Bridge made a loss at the EBIT level, and saw its revenue drop to ₹154m, which is a fall of 39%. To be frank that doesn't bode well.

Caveat Emptor

While Noida Toll Bridge's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable ₹396m at the EBIT level. 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. We would feel better if it turned its trailing twelve month loss of ₹364m into a profit. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Noida Toll Bridge (including 1 which is a bit concerning) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.