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Does TTK Prestige (NSE:TTKPRESTIG) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital. When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that TTK Prestige Limited (NSE:TTKPRESTIG) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for TTK Prestige

What Is TTK Prestige's Debt?

The image below, which you can click on for greater detail, shows that TTK Prestige had debt of ₹904.8m at the end of March 2019, a reduction from ₹1.29b over a year. However, it does have ₹2.44b in cash offsetting this, leading to net cash of ₹1.54b.

NSEI:TTKPRESTIG Historical Debt, October 1st 2019
NSEI:TTKPRESTIG Historical Debt, October 1st 2019

How Strong Is TTK Prestige's Balance Sheet?

We can see from the most recent balance sheet that TTK Prestige had liabilities of ₹3.84b falling due within a year, and liabilities of ₹1.02b due beyond that. Offsetting these obligations, it had cash of ₹2.44b as well as receivables valued at ₹3.34b due within 12 months. So it actually has ₹924.4m more liquid assets than total liabilities.

This state of affairs indicates that TTK Prestige's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹86.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that TTK Prestige has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that TTK Prestige grew its EBIT by 15% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if TTK Prestige can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. TTK Prestige 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. In the last three years, TTK Prestige's free cash flow amounted to 31% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that TTK Prestige has net cash of ₹1.54b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 15% in the last twelve months. So we don't have any problem with TTK Prestige's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of TTK Prestige's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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