JSW Infrastructure (NSE:JSWINFRA) Could Easily Take On More Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies JSW Infrastructure Limited (NSE:JSWINFRA) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for JSW Infrastructure

What Is JSW Infrastructure's Debt?

As you can see below, JSW Infrastructure had ₹44.1b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₹44.4b in cash offsetting this, leading to net cash of ₹260.7m.

How Healthy Is JSW Infrastructure's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that JSW Infrastructure had liabilities of ₹8.24b due within 12 months and liabilities of ₹48.5b due beyond that. Offsetting this, it had ₹44.4b in cash and ₹8.39b in receivables that were due within 12 months. So it has liabilities totalling ₹3.94b more than its cash and near-term receivables, combined.

This state of affairs indicates that JSW Infrastructure's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹623.7b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, JSW Infrastructure boasts net cash, so it's fair to say it does not have a heavy debt load!

And we also note warmly that JSW Infrastructure grew its EBIT by 17% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if JSW Infrastructure 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. While JSW Infrastructure has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, JSW Infrastructure actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that JSW Infrastructure has ₹260.7m in net cash. The cherry on top was that in converted 100% of that EBIT to free cash flow, bringing in ₹12b. So we don't think JSW Infrastructure's use of debt is risky. Another factor that would give us confidence in JSW Infrastructure would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.