Does Sintex Plastics (NSE: SPTL) technology use debt wisely?
Warren Buffett said: “Volatility is far from synonymous with risk”. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We can see that Sintex Plastics Technology Limited (NSE: SPTL) uses debt in its business. But the most important question is: what risk does this debt create?
What risk does debt entail?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. If things really go wrong, lenders can take over the business. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for Sintex Plastics Technology
What is Sintex Plastics Technology’s net debt?
As you can see below, Sintex Plastics Technology was owed 31.0 billion yen in March 2021, which is roughly the same as the year before. You can click on the graph for more details. However, given that it has a cash reserve of 5.93 billion yen, its net debt is less, at around 25.1 billion yen.
How strong is Sintex Plastics Technology’s balance sheet?
We can see from the most recent balance sheet that Sintex Plastics Technology had liabilities of 45.3 billion yen due within one year and liabilities of 2.66 billion yen beyond. In return, he had 5.93 billion yen in cash and 1.82 billion yen in receivables due within 12 months. It therefore has liabilities totaling 40.2 billion yen more than its cash and short-term receivables combined.
This deficit casts a shadow over â¹ 2.96b society, like a towering colossus of mere mortals. So we would be watching its record closely, without a doubt. After all, Sintex Plastics Technology would likely need a major recapitalization if it were to pay its creditors today. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of Sintex Plastics Technology that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Over the past year, Sintex Plastics Technology has not been profitable in terms of EBIT, but has managed to increase its turnover by 29%, to 9.5 billion euros. Hopefully the business will be able to move towards profitability.
While we can certainly appreciate the revenue growth of Sintex Plastics Technology, its earnings before interest and taxes (EBIT) are not ideal. Indeed, it lost a very considerable amount of 822 million euros at the EBIT level. Thinking about this and the large total liabilities, it’s hard to know what to say about the stock due to our intense de-refinement for it. Of course, the company could have a great story on how it is heading towards a better future. But the reality is that it is low on liquid assets compared to liabilities, and it has lost 3.7 billion yen in the past year. So we’re not very keen on owning this stock. It’s too risky for us. 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. These risks can be difficult to spot. Every business has them, and we’ve spotted 3 warning signs for Sintex Plastics Technology (1 of which doesn’t suit us very well!) you should know that.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is 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 documents. Simply Wall St has no position in the mentioned stocks.
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