Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Above all, Tanla Platforms Limited (NSE: TANLA) is in debt. But should shareholders worry about its use of debt?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, many companies use debt to finance their growth, without any negative consequences. When we look at debt levels, we first consider cash and debt levels, together.
Check out our latest analysis for Tanla platforms
How much debt does Tanla Platforms have?
The image below, which you can click on for more details, shows that as of March 2022, Tanla Platforms had a debt of ₹535.3m, up from ₹43.5m in a year. But he also has ₹8.62 billion in cash to offset this, meaning he has a net cash of ₹8.09 billion.
A look at the responsibilities of Tanla platforms
We can see from the most recent balance sheet that Tanla Platforms had liabilities of ₹9.88 billion due in one year, and liabilities of ₹526.3 million due beyond. As compensation for these obligations, it had cash of ₹8.62 billion as well as receivables valued at ₹9.72 billion due within 12 months. It can therefore boast of having ₹7.94 billion more liquid assets than total Passives.
This surplus suggests that Tanla Platforms has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. In short, Tanla Platforms has net cash, so it’s fair to say that it doesn’t have a lot of debt!
On top of that, we are pleased to report that Tanla Platforms increased its EBIT by 44%, reducing the specter of future debt repayments. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Tanla Platforms’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Finally, while the taxman may love accounting profits, lenders only accept cash. Tanla Platforms may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Over the past three years, Tanla Platforms has recorded free cash flow of 87% of its EBIT, which is higher than what we would normally expect. This puts him in a very strong position to pay off the debt.
Summary
While it is always a good idea to investigate a company’s debt, in this case Tanla Platforms has ₹8.09 billion in net cash and a decent balance sheet. The icing on the cake was that he converted 87% of that EBIT into free cash flow, bringing in ₹4.2 billion. We therefore do not believe Tanla Platforms’ use of debt is risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. For example, Tanla Platforms has 2 warning signs (and 1 which is a little worrying) that we think you should know about.
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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