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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Yatra Online, Inc. (NASDAQ:YTRA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.
How Much Debt Does Yatra Online Carry?
The image below, which you can click on for greater detail, shows that at December 2021 Yatra Online had debt of ₹209.6m, up from ₹8.05m in one year. But on the other hand it also has ₹1.51b in cash, leading to a ₹1.30b net cash position.
A Look At Yatra Online's Liabilities
The latest balance sheet data shows that Yatra Online had liabilities of ₹3.35b due within a year, and liabilities of ₹682.0m falling due after that. On the other hand, it had cash of ₹1.51b and ₹1.55b worth of receivables due within a year. So its liabilities total ₹964.4m more than the combination of its cash and short-term receivables.
Given Yatra Online has a market capitalization of ₹8.35b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Yatra Online also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Yatra Online's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Yatra Online had a loss before interest and tax, and actually shrunk its revenue by 7.7%, to ₹1.9b. That's not what we would hope to see.
So How Risky Is Yatra Online?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Yatra Online had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₹1.1b of cash and made a loss of ₹952m. However, it has net cash of ₹1.30b, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Yatra Online is showing 1 warning sign in our investment analysis , you should know about...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.