Is Yatra Online (NASDAQ:YTRA) Using Debt In A Risky Way?

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.' 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. As with many other companies Yatra Online, Inc. (NASDAQ:YTRA) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. 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 Yatra Online

What Is Yatra Online's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Yatra Online had debt of ₹358.6m, up from ₹131.1m in one year. However, it does have ₹1.37b in cash offsetting this, leading to net cash of ₹1.01b.

How Strong Is Yatra Online's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Yatra Online had liabilities of ₹4.18b due within 12 months and liabilities of ₹388.1m due beyond that. Offsetting these obligations, it had cash of ₹1.37b as well as receivables valued at ₹2.20b due within 12 months. So it has liabilities totalling ₹1.00b more than its cash and near-term receivables, combined.

Given Yatra Online has a market capitalization of ₹13.7b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Yatra Online 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 it is future earnings, more than anything, that will determine Yatra Online's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Yatra Online wasn't profitable at an EBIT level, but managed to grow its revenue by 56%, to ₹2.0b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Yatra Online?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Yatra Online had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₹1.1b of cash and made a loss of ₹478m. But at least it has ₹1.01b on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Yatra Online may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Yatra Online's profit, revenue, and operating cashflow have changed over the last few years.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.