Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. ” So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Mostly, Apollo Pipes Limited (NSE: APOLLOPIPE) is in debt. But should shareholders be concerned about its use of debt?
When is debt a problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, debt can be an important tool in businesses, especially large cap companies. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for Apollo Pipes
What is Apollo Pipes’ net debt?
As you can see below, Apollo Pipes had a debt of 522.5 million yen in March 2021, up from 900.7 million yen the previous year. However, his balance sheet shows that he holds 798.2 million yen in cash, so he actually has net cash of 275.6 million yen.
How strong is Apollo Pipes’ balance sheet?
The latest balance sheet data shows that Apollo Pipes had 1.21 billion yen in liabilities due within one year, and 219.4 million yen liabilities due after that. On the other hand, it had cash of 798.2 million and 690.2 million of receivables due within one year. So he actually ₹ 60.5m After 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 the ₹ 14.3bn company is highly unlikely to be cash-strapped, but still worth keeping an eye on the 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!
On top of that, Apollo Pipes has increased its EBIT by 62% over the past twelve months, and this growth will make it easier to process its debt. There is no doubt that we learn the most about debt from the balance sheet. But it is the earnings of Apollo Pipes that will influence the balance sheet in the future. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
But our last consideration is also important, because a company cannot pay its debts with paper profits; he needs cash. Apollo Pipes may have net cash on the balance sheet, but it’s always interesting to see the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its capacity. . to manage debt. Over the past three years, Apollo Pipes has recorded substantial total negative free cash flow. While investors no doubt expect this situation to turn around in due course, this clearly means that its use of debt is riskier.
While we sympathize with investors who find debt worrying, you should keep in mind that Apollo Pipes has net cash of 275.6 million yen, plus more liquid assets than liabilities. And we liked the appearance of the 62% year-over-year growth in EBIT from last year. So we have no problem with Apollo Pipes’ use of debt. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we have identified 2 warning signs for Apollo Pipes (1 cannot be ignored) you must be aware.
If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
When trading Apollo Pipes or any other investment, use the platform seen by many as the professionals’ gateway to the global market, Interactive brokers. You get the cheapest * transactions in stocks, options, futures, forex, bonds and funds from around the world from one integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We aim 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 information. Simply Wall St has no position in the mentioned stocks.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Annual Online Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.