Warren Buffett once said, “Volatility is far from synonymous with risk.” When evaluating a company’s risk level, it’s natural to look at its balance sheet, as debt is often involved in business failures. Marico Limited (NSE:MARICO) has debt, but the question is whether this debt poses a risk. To assess this, let’s examine the company’s cash and debt together. Marico has ₹4.98 billion in debt, but also has ₹14.5 billion in cash, resulting in a net cash position of ₹9.55 billion. This suggests that the company has a healthy balance sheet, with sufficient cash to offset its debt.
An analysis of the balance sheet shows that Marico has liabilities of ₹23.5 billion due within 12 months and ₹8.23 billion due beyond that. However, it also has ₹14.5 billion in cash and ₹13.1 billion in receivables due within 12 months. This means that its liabilities outweigh its cash and near-term receivables by ₹4.08 billion. Despite this, Marico’s liquid assets are well-balanced with its total liabilities, indicating that it has sufficient funds to manage its debt.
Marico’s recent growth of 7.6% in EBIT over the past 12 months should ease concerns about debt repayment. The company’s ability to maintain a healthy balance sheet going forward will depend on its future earnings performance. A business needs free cash flow to pay off debt, and Marico’s free cash flow equals 61% of its EBIT. This means it can reduce its debt when it wants to.
In conclusion, while it’s essential to examine a company’s debt levels, Marico’s net cash position provides reassurance that the company can manage its debt safely. The company’s ability to generate free cash flow and its recent growth in EBIT suggest that it can maintain a healthy balance sheet going forward.