Astrakhan Power Sale Company (MCX:ASSB) Has Debt But No Earnings; Should You Worry?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Astrakhan Power Sale Company Public Joint-Stock Company (MCX:ASSB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Astrakhan Power Sale Company

What Is Astrakhan Power Sale Company's Debt?

As you can see below, at the end of June 2021, Astrakhan Power Sale Company had ₽177.1m of debt, up from none a year ago. Click the image for more detail. But it also has ₽219.1m in cash to offset that, meaning it has ₽42.0m net cash.

A Look At Astrakhan Power Sale Company's Liabilities

The latest balance sheet data shows that Astrakhan Power Sale Company had liabilities of ₽2.65b due within a year, and liabilities of ₽1.71b falling due after that. Offsetting this, it had ₽219.1m in cash and ₽4.26b in receivables that were due within 12 months. So it actually has ₽129.6m more liquid assets than total liabilities.

This surplus suggests that Astrakhan Power Sale Company is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Astrakhan Power Sale Company boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Astrakhan Power Sale Company will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Astrakhan Power Sale Company wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to ₽12b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Astrakhan Power Sale Company?

Although Astrakhan Power Sale Company had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₽124m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 5 warning signs for Astrakhan Power Sale Company 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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