Share Dilution

Does CL Educate (NSE:CLEDUCATE) have a healthy track record?

Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We note that CL Educate Limited (NSE:CLEDUCATE) has a debt on its balance sheet. But should shareholders worry about its use of debt?

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. If things go really bad, lenders can take over the business. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for CL Educate

What is CL Educate’s debt?

As you can see below, CL Educate had a debt of ₹169.7 million in March 2022, up from ₹428.3 million in the previous year. But on the other hand, it also has ₹609.0 million in cash, resulting in a net cash position of ₹439.3 million.

NSEI:CLEDUCATE Debt to Equity History August 2, 2022

How healthy is CL Educate’s balance sheet?

The latest balance sheet data shows that CL Educate had liabilities of ₹727.6 million due within one year, and liabilities of ₹133.9 million falling due thereafter. On the other hand, it had cash of ₹609.0 million and ₹629.6 million of receivables due within one year. So he actually has ₹377.1 million After liquid assets than total liabilities.

This short-term liquidity is a sign that CL Educate could probably easily repay its debt, as its balance sheet is far from stretched. Simply put, the fact that CL Educate has more cash than debt is arguably a good indication that it can safely manage its debt.

We also note that CL Educate improved its EBIT from last year’s loss to a positive result of ₹124 million. The balance sheet is clearly the area to focus on when analyzing debt. But it is the earnings of CL Educate that will influence the balance sheet in the future. So, if you want to know more about its earnings, it might be worth checking out this graph of its long-term trend.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. CL Educate may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Over the past year, CL Educate has recorded free cash flow of 100% of its EBIT, which is higher than what we would normally expect. This positions him well to pay off debt if desired.

Summary

While we sympathize with investors who find debt a concern, you should bear in mind that CL Educate has a net cash position of ₹439.3 million, as well as more liquid assets than liabilities. The icing on the cake was that 100% of this EBIT was converted into free cash flow, bringing in ₹124 million. We therefore do not believe that CL Educate’s use of debt is risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example – CL Educate has 1 warning sign we think you should know.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.