Here’s why Banka BioLoo (NSE:BANKA) has significant debt
David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Mostly, Banka BioLoo Limited (NSE:BANKA) is in debt. But should shareholders worry about its use of debt?
When is debt a problem?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
See our latest analysis for Banka BioLoo
What is Banka BioLoo’s net debt?
The image below, which you can click on for more details, shows that as of September 2021, Banka BioLoo had a debt of ₹121.3m, up from ₹105.8m in a year. However, he also had ₹37.1 million in cash, and hence his net debt is ₹84.2 million.
A look at the responsibilities of Banka BioLoo
According to the latest published balance sheet, Banka BioLoo had liabilities of ₹115.2 million due within 12 months and liabilities of ₹53.8 million due beyond 12 months. In return, he had ₹37.1 million in cash and ₹134.5 million in receivables due within 12 months. These liquid assets therefore roughly correspond to the total liabilities.
This situation indicates that Banka BioLoo’s balance sheet looks quite strong, as its total liabilities are roughly equal to its cash. So while it’s hard to imagine the ₹646.2m company struggling to raise cash, we still think it’s worth keeping an eye on its balance sheet.
In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.
Banka BioLoo has net debt worth 2.1x EBITDA, which isn’t too much, but its interest coverage seems a little low, with EBIT at just 2.7x interest expense. interests. While that doesn’t worry us too much, it does suggest that interest payments are a bit of a burden. Importantly, Banka BioLoo’s EBIT has fallen by 31% over the last twelve months. If this earnings trend continues, paying off debt will be about as easy as herding cats on a roller coaster. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since Banka BioLoo will need income to repay this debt. So, if you want to know more about its earnings, it might be worth checking out this graph of its long-term trend.
Finally, a business needs free cash flow to pay off its debts; book profits are not enough. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years, Banka BioLoo has actually had a cash outflow, overall. Debt is generally more expensive and almost always riskier in the hands of a company with negative free cash flow. Shareholders should hope for an improvement.
Our point of view
We would go so far as to say that Banka BioLoo’s EBIT growth rate is disappointing. But on the positive side, his level of total liabilities is a good sign and makes us more optimistic. Once we consider all of the above factors, together, it seems to us that Banka BioLoo’s debt makes it a bit risky. This isn’t necessarily a bad thing, but we would generally feel more comfortable with less leverage. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 4 warning signs for Banka BioLoo (1 should not be ignored) which you should be aware of.
If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
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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.