The balance sheet of Garware Technical Fibres NSE:GARFIBRES

As Howard Marks so eloquently stated, “The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about,” instead of fretting about share price fluctuation. Given that debt is frequently involved when a firm fails, it makes sense to look at a company’s balance sheet when assessing its level of risk. Crucially, there is debt owed by Garware Technical Fibres Limited (NSE:GARFIBRES). The true concern, though, is whether the corporation is becoming riskier as a result of this debt.

When Does Debt Become an Issue?

Although debt may be a useful instrument for corporate expansion, a company is at the whim of its lenders if it is unable to repay them. Ultimately, stockholders may lose everything if the business is unable to satisfy its legal debt repayment requirements. But a more common (though still expensive) situation is when a business has to issue shares at a discount. basement prices in order to support its balance sheet, permanently diluting shareholders. Of course, debt may be a useful tool for organisations, especially those that require a lot of money. Cash and debt are the first things we consider when considering a company’s usage of debt.

Check out our latest analysis for Garware Technical Fibres

What Is the Debt of Garware Technical Fibres?

You can click on the graphic below for more information. As of September 2024, Garware Technical Fibres owed ₹1.42 billion, up from ₹1.16 billion in just one year. However, it also possesses ₹1.62 billion in cash, which results in a net cash position of ₹199.9 million.

How Sound Is the Balance Sheet of Garware Technical Fibres?

Examining the most recent balance sheet data in detail, we can see that Garware Technical Fibres owed ₹4.91 billion in obligations that were due within a year and ₹575.6 million that were past due. However, it possessed ₹1.62 billion in cash and ₹2.52 billion in receivables that were due within a year. Therefore, its liabilities are ₹1.34 billion more than the whole of its cash and (near-term) receivables.

Since Garware Technical Fibres’ total liabilities are almost equal to its liquid assets, the company’s balance sheet appears to be in good shape. Although the ₹81.5 billion corporation is unlikely to be cash-strapped, it is nonetheless necessary to monitor the balance sheet. Even though Garware Technical Fibres has noteworthy obligations, we are quite certain that it can securely handle its debt because it has more cash on hand than debt.

Positively, Garware Technical Fibres increased its EBIT by 23% in the previous year, which might facilitate future debt repayment. The balance sheet is without a doubt the primary source of information concerning debt. However, in the end, the company’s future prosperity will determine whether Garware Technical Fibres can eventually improve its balance situation. Therefore, this free study on analyst profit estimates may be of interest to you if you want to know what the experts believe.

Lastly, accounting earnings are insufficient to pay down debt; a company requires free cash flow. Even if Garware Technical Fibres’ balance sheet shows net cash, it’s still important to examine how well it can turn earnings before interest and tax (EBIT) into free cash flow. recognise the speed at which that cash balance is being built (or eroded). Garware Technical Fibres generated strong free cash flow over the previous three years, which is roughly what we would anticipate and amounts to 61% of its EBIT. When it wants to, it may lower its debt thanks to this hard currency.

Conclusion

The fact that Garware Technical Fibres has ₹199.9 million in net cash gives us comfort, but we can understand if investors are worried about its obligations. Additionally, we thought last year’s 23% year-over-year EBIT increase looked good. Is the debt of Garware Technical Fibres a concern, then? We don’t believe that. When assessing debt, it is evident that the balance sheet should be the primary emphasis. On the other hand, not all investment risk is found on the balance sheet. For instance, before making an investment here, you should be aware of the one caution flag we found for Garware Technical Fibres.

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