Here's Why TNS energo Mari El (MCX:MISB) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Public Joint-stock Company TNS energo Mari El (MCX:MISB) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for TNS energo Mari El

What Is TNS energo Mari El's Net Debt?

As you can see below, TNS energo Mari El had ₽1.00b of debt, at June 2020, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of ₽26.8m, its net debt is less, at about ₽974.7m.

A Look At TNS energo Mari El's Liabilities

We can see from the most recent balance sheet that TNS energo Mari El had liabilities of ₽1.46b falling due within a year, and liabilities of ₽332.9m due beyond that. On the other hand, it had cash of ₽26.8m and ₽1.42b worth of receivables due within a year. So it has liabilities totalling ₽346.3m more than its cash and near-term receivables, combined.

TNS energo Mari El has a market capitalization of ₽1.52b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TNS energo Mari El will need earnings to service that debt. 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 TNS energo Mari El wasn't profitable at an EBIT level, but managed to grow its revenue by 7.5%, to ₽8.3b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, TNS energo Mari El had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₽179m 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. Surprisingly, we note that it actually reported positive free cash flow of ₽15m and a profit of ₽197m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for TNS energo Mari El (of which 2 are potentially serious!) 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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