Warren Buffett said: “Volatility is far from synonymous with risk”. It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Mostly, Syngene International Limited (NSE: SYNGENE) is in debt. But does this debt concern shareholders?
What risk does debt entail?
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 costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. The first step when considering a company’s debt levels is to consider its cash flow and debt together.
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What is Syngene International’s net debt?
As you can see below, at the end of March 2021, Syngene International had 8.66 billion yen in debt, up from 6.88 billion yen a year ago. Click on the image for more details. However, it has 12.4 billion yen in cash to compensate for this, which leads to a net cash position of 3.70 billion yen.
A look at the liabilities of Syngene International
According to the latest published balance sheet, Syngene International had liabilities of 11.3 billion yen within 12 months and liabilities of 9.29 billion yen due beyond 12 months. On the other hand, he had 12.4 billion yen in cash and 3.39 billion yen in receivables due within a year. Thus, its liabilities exceed the sum of its cash and its (short-term) receivables by 4.86 b.
Given that publicly traded Syngene International shares are worth a total of 234.9 billion yen, it seems unlikely that this level of liabilities is a major threat. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. While she has some liabilities to note, Syngene International also has more cash than debt, so we’re pretty confident that she can handle her debt safely.
While Syngene International doesn’t appear to have gained much on the EBIT line, at least earnings remain stable for now. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Syngene International’s ability to maintain a healthy balance sheet in the future. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Finally, while the tax authorities love accounting profits, lenders only accept hard cash. Syngene International may have net cash on the balance sheet, but it is 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 need and its capacity. to manage debt. Over the past three years, Syngene International’s free cash flow has been 30% of its EBIT, less than we expected. This low cash conversion makes debt management more difficult.
While it always makes sense to look at a company’s total liabilities, it is very reassuring that Syngene International has € 3.70 billion in net cash. We are therefore not concerned with the use of debt by Syngene International. We would be motivated to seek more stock if we found out that Syngene International insiders have recently bought stocks. If you too are in luck, because today we are sharing our list of reported insider trades for free.
If you want to invest in businesses 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.
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