Warren Buffett famously said, “Instability is far from risk.” It’s natural to consider a company’s nse: ambujacem balance sheet when examining how risky it is, since debt is often involved when a business collapses. It is important to note that Ambuja Cements Limited (NSE: AMBUJACEM) has debt. But should shareholders be concerned about their use of debt?
Debt and other problems become risky for a company when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. While that’s not too common, we often see indebted companies permanently diluting shareholders because lenders force them to raise capital at a reduced price.
Having said that, the most common condition is when a company manages its debt reasonably well, and for its own benefit. The first step in considering a company’s debt levels is to consider its cash and debt together.
The chart below, which you can click on for greater detail, shows that nse: ambujacem had ₹468.3m in debt in December 2022; about the same as the year before. But on the other hand it also has ₹98.3b in cash, leading to a ₹97.8b net cash position.
According to the last reported balance sheet, Ambuja Cements had liabilities of ₹106.0b due within 12 months, and liabilities of ₹14.5b due beyond 12 months. Offsetting this, it had ₹98.3b in cash and ₹10.6b in receivables that were due within 12 months. So its liabilities out weigh the sum of its cash and (near-term) receivables by ₹11.6b.
Having regard to nse: ambujacem ambuja cements’ size, it seems that its liquid assets are well balanced with its total liabilities. So it’s very unlikely that the ₹765.6b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Ambuja Cements boasts net cash, so it’s fair to say it does not have a heavy debt load!
Its low leverage may become crucial for ambuja cements if management cannot prevent a repeat of the 49% reduction in EBIT over the past year. When a company sees its profit reservoir, it can sometimes see its relationship with its investors turn sour. The balance sheet is obviously the area to focus on when analyzing debt.
But ultimately, the company’s future profitability will decide whether Ambuja Cements can reinforce its balance sheet over time. So if you’re dedicated on the future, you can check out this free report showing analyst earnings forecasts.
Finally, a company can only repay its debts with cold hard cash, not with book profits. Although Ambuja Cements has net cash on its balance sheet, it is still worth looking at its skill to convert earnings before interest and tax (EBIT) to free currency flow, to help us understand how quickly it is building (or erodes) that treasury. balance.
Over the past three years, Ambuja Cements has recorded a free cash flow of 5.9% of its EBIT, which is really quite low. For us, such a low cash conversion creates a bit of paranoia about the ability to extinguish the debt.
to buy Ambuja cement shares?
The best time to buy shares is when the share prices of a particular stock are low. There is always the possibility that they could go even lower, but buying low is significantly safer than buying high, where the stock price is unlikely to go much higher.
The future stock price of the ambuja cements Ltd (“500425” ) will be 862.456 INR.
Adani completes acquisition of Ambuja Cements and ACC.
Shortly after the Adani acquisition, the two cement companies announced the resignation of their board of directors, including chief executive officers and chief financial officers.
According to media reports, the latest crash in Ambuja Cement share price is due to margin-funding pressures. Investors who borrowed money to purchase the stock (using a margin account) are now facing a loss on their investment.
The most well-known method for esteeming a stock is to compute the organization’s cost income (P/E) proportion. The P/E proportion rises to the organization’s stock cost separated by its most as of late announced income per share (EPS). A low P/E proportion nse: ambujacem infers that a financial backer purchasing the stock gets an appealing worth.
While it is always a good idea to look at a company’s total liabilities, it is very reassuring that Ambuja Cements has ₹97.8 billion in net cash. We therefore have no problem with the use of debt by Ambuja Cements.
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 outside of the balance sheet. For example, Ambuja Cements has 5 warning signs (and 2 that make us uncomfortable) that we think you should be aware of.
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.
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