Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Mold-Tek Technologies Limited (NSE:MOLDTEK) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Mold-Tek Technologies
How Much Debt Does Mold-Tek Technologies Carry?
As you can see below, at the end of March 2019, Mold-Tek Technologies had ₹22.5m of debt, up from ₹17.4m a year ago. Click the image for more detail. However, it does have ₹133.0m in cash offsetting this, leading to net cash of ₹110.5m.
A Look At Mold-Tek Technologies's Liabilities
Zooming in on the latest balance sheet data, we can see that Mold-Tek Technologies had liabilities of ₹100.5m due within 12 months and liabilities of ₹8.38m due beyond that. Offsetting this, it had ₹133.0m in cash and ₹321.4m in receivables that were due within 12 months. So it actually has ₹345.6m more liquid assets than total liabilities.
This surplus suggests that Mold-Tek Technologies is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Mold-Tek Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.
Even more impressive was the fact that Mold-Tek Technologies grew its EBIT by 125% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Mold-Tek Technologies will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.