Does Wise Travel India (NSE:WTICAB) Have A 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.' 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. We can see that Wise Travel India Limited (NSE:WTICAB) does use debt in its business. 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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Wise Travel India

What Is Wise Travel India's Debt?

The chart below, which you can click on for greater detail, shows that Wise Travel India had ₹272.8m in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds ₹1.04b in cash, so it actually has ₹769.7m net cash.

A Look At Wise Travel India's Liabilities

We can see from the most recent balance sheet that Wise Travel India had liabilities of ₹769.6m falling due within a year, and liabilities of ₹169.8m due beyond that. Offsetting these obligations, it had cash of ₹1.04b as well as receivables valued at ₹914.3m due within 12 months. So it can boast ₹1.02b more liquid assets than total liabilities.

This short term liquidity is a sign that Wise Travel India could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Wise Travel India boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Wise Travel India grew its EBIT by 109% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Wise Travel India'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Wise Travel India may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Wise Travel India saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Wise Travel India has ₹769.7m in net cash and a decent-looking balance sheet. And we liked the look of last year's 109% year-on-year EBIT growth. So we don't have any problem with Wise Travel India's use of debt. 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 Wise Travel India has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.