These 4 measures indicate that Apollo Pipes (NSE: APOLLOPIPE) is using debt reasonably well

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say this when he says “The biggest risk in investing is not price volatility, but if you will suffer a loss. permanent capital “. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Like many other companies Apollo Pipes Limited (NSE: APOLLOPIPE) uses debt. But the real question is whether this debt makes the business risky.

When is Debt a Problem?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution of a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

Check out our latest review for Apollo Pipes

What is the debt of Apollo Pipes?

You can click on the graph below for historical figures, but it shows that Apollo Pipes had a debt of 237.1 million yen in September 2021, down from 284.6 million yen a year earlier. But on the other hand, it also has 408.5 million yen in cash, which leads to a net cash position of 171.5 million yen.

NSEI: APOLLOPIPE History of debt on equity December 21, 2021

A look at the responsibilities of Apollo Pipes

Zooming in on the latest balance sheet data, we can see that Apollo Pipes had liabilities of 879.9 million yen owed within 12 months and liabilities of 162.5 million yen beyond. On the other hand, he had 408.5 million yen in cash and 926.1 million yen in receivables within one year. So it actually has ₹ 292.2m Following liquid assets as total liabilities.

Considering the size of Apollo Pipes, it appears that its liquid assets are well balanced with its total liabilities. So while it’s hard to imagine the 20.7 billion yen company struggling to find cash, we still think it’s worth watching its balance sheet. In short, Apollo Pipes has clean cash flow, so it’s fair to say that it doesn’t have a lot of debt!

Even more impressive was the fact that Apollo Pipes increased its EBIT by 146% year over year. If sustained, this growth will make debt even more manageable in the years to come. The balance sheet is clearly the area to focus on when analyzing debt. But it is the earnings of Apollo Pipes that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. Although Apollo Pipes has net cash on its balance sheet, it is still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it is building. (or erode) that cash. balance. Over the past three years, Apollo Pipes has burned a lot of money. While investors no doubt expect this situation to reverse in due course, this clearly means its use of debt is riskier.

In summary

While we sympathize with investors who find debt worrying, you should keep in mind that Apollo Pipes has net cash of 171.5 million yen, as well as more liquid assets than liabilities. And it has impressed us with its 146% EBIT growth over the past year. So we have no problem with Apollo Pipes’ use of debt. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 2 warning signs for Apollo Pipes (1 shouldn’t be ignored!) Which you should be aware of before investing here.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.


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