Does Igarashi Motors India (NSE: IGARASHI) have a healthy balance sheet?
Warren Buffett said: “Volatility is far from synonymous with risk. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We can see that Igarashi Motors India Limited (NSE: IGARASHI) uses debt in its business. But should shareholders worry about its use of debt?
Why is debt risky?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
Check out our latest analysis for Igarashi Motors India
What is Igarashi Motors India’s debt?
The image below, which you can click for more details, shows that as of March 2022, Igarashi Motors India had a debt of ₹1.00 billion, up from ₹951.2 million in one year. However, he has ₹263.1 million of cash to offset this, resulting in a net debt of around ₹740.0 million.
How healthy is Igarashi Motors India’s balance sheet?
According to the latest published balance sheet, Igarashi Motors India had liabilities of ₹1.81 billion due within 12 months and liabilities of ₹570.1 million due beyond 12 months. In return, he had ₹263.1 million in cash and ₹1.41 billion in receivables due within 12 months. It therefore has liabilities totaling ₹710.9 million more than its cash and short-term receivables, combined.
Of course, Igarashi Motors India has a market cap of ₹14.8 billion, so those liabilities are probably manageable. That said, it is clear that we must continue to monitor its record, lest it deteriorate. The balance sheet is clearly the area to focus on when analyzing debt. But it is the profits of Igarashi Motors India that will influence the balance sheet in the future. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.
Over 12 months, Igarashi Motors India recorded a loss in EBIT and saw its revenue fall to ₹5.5 billion, a decline of 14%. It’s not what we expected to see.
Not only has Igarashi Motors India’s revenue dropped over the past twelve months, it has also produced negative earnings before interest and tax (EBIT). To be precise, the EBIT loss amounted to ₹64 million. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. So we think its balance sheet is a little stretched, but not beyond repair. We would feel better if he turned his ₹68m year-over-year loss into a profit. We therefore believe that this title is quite risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. To this end, you should be aware of the 2 warning signs we spotted with Igarashi Motors India.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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