We think Indian Terrain Fashions (NSE: INDTERRAIN) has a good deal of debt

David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ 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. Like many other companies Indian Terrain Fashions Limited (NSE: INDTERRAIN) uses debt. But the real question is whether this debt makes the business risky.

When is debt a problem?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.

Check out our latest review for Indian Terrain Fashions

How much debt do Indian land fashions carry?

The graph below, which you can click for more details, shows Indian Terrain Fashions owed 441.4 million yen in March 2021; about the same as the year before. On the other hand, it has 221.5 million in liquidity, resulting in a net debt of around 219.9 million.

NSEI: INDTERRAIN History of debt to equity June 25, 2021

A look at the responsibilities of Indian Terrain Fashions

According to the latest published balance sheet, Indian Terrain Fashions had a liability of 1.83 billion yen due within 12 months and a liability of 836.9 million yen due beyond 12 months. On the other hand, he had 221.5 million yen in cash and 2.32 billion yen in receivables within a year. Its liabilities are therefore 131.2 million more than the combination of its cash and short-term receivables.

Of course, Indian Terrain Fashions has a market cap of 1.58 billion yen, so this liability is probably manageable. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the earnings of Indian Terrain Fashions that will influence the way the balance sheet looks going forward. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.

Over the past year, Indian Terrain Fashions has incurred a loss before interest and taxes and has actually cut income by 42%, to £ 2.1. It makes us nervous, to say the least.

Emptor Warning

Not only has Indian Terrain Fashions revenue declined over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). Indeed, it lost a very considerable amount of 420 million euros at the EBIT level. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. We therefore believe that its record is a bit strained, but not irreparable. We’d be better off if he turned his 12-month 308 million yen loss into profit. In short, it is a really risky action. 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 4 warning signs for Indian Terrain Fashions (1 of which cannot be ignored!) that you should know.

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

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This Simply Wall St article is general in nature. 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 any of the stocks mentioned.
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