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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. As with many other companies Thyrocare Technologies Limited (NSE:THYROCARE) makes use of debt. But the more important question is: how much risk is that debt creating?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Thyrocare Technologies
How Much Debt Does Thyrocare Technologies Carry?
You can click the graphic below for the historical numbers, but it shows that Thyrocare Technologies had ₹25.0m of debt in March 2019, down from ₹106.2m, one year before. But on the other hand it also has ₹842.4m in cash, leading to a ₹817.4m net cash position.
How Healthy Is Thyrocare Technologies's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Thyrocare Technologies had liabilities of ₹205.9m due within 12 months and liabilities of ₹191.2m due beyond that. Offsetting these obligations, it had cash of ₹842.4m as well as receivables valued at ₹124.6m due within 12 months. So it can boast ₹569.9m more liquid assets than total liabilities.
This surplus suggests that Thyrocare Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Thyrocare Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!
While Thyrocare Technologies doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Thyrocare Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Thyrocare Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Thyrocare Technologies recorded free cash flow worth 51% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.