Is RattanIndia Enterprises (NSE:RTNINDIA) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, RattanIndia Enterprises Limited (NSE:RTNINDIA) does carry debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for RattanIndia Enterprises

How Much Debt Does RattanIndia Enterprises Carry?

As you can see below, at the end of September 2021, RattanIndia Enterprises had ₹200.0m of debt, up from none a year ago. Click the image for more detail. However, it also had ₹40.1m in cash, and so its net debt is ₹159.9m.

How Strong Is RattanIndia Enterprises' Balance Sheet?

The latest balance sheet data shows that RattanIndia Enterprises had liabilities of ₹207.8m due within a year, and liabilities of ₹2.59m falling due after that. Offsetting this, it had ₹40.1m in cash and ₹8.30m in receivables that were due within 12 months. So its liabilities total ₹162.0m more than the combination of its cash and short-term receivables.

Having regard to RattanIndia Enterprises' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹62.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, RattanIndia Enterprises has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is RattanIndia Enterprises'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.

While it hasn't made a profit, at least RattanIndia Enterprises booked its first revenue as a publicly listed company, in the last twelve months.

Caveat Emptor

Over the last twelve months RattanIndia Enterprises produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₹22m. 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 ₹54m into a profit. So we do think this stock is quite 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. Be aware that RattanIndia Enterprises is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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