Does Future Market Networks (NSE:FMNL) have a healthy balance sheet?

Warren Buffett famously said, “Volatility is far from risk.” So it seems that the smart money knows that debt, which is usually involved in bankruptcies, is a very important factor when evaluating how risky a company is. we can see that Limited future market networks (NSE:FMNL) uses debt in its business. But is this debt a concern for shareholders?

Why does debt bring risk?

Debt is a tool to help businesses grow, but if a business is unable to pay its lenders then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” in which bankers ruthlessly liquidate failing companies. However, a more common (but still expensive) situation is when a company must dilute shareholders at a cheap share price simply to control debt. Of course, many companies use debt to finance growth, without negative consequences. The first thing to do when considering the amount of debt a business uses is to look at your cash and debt together.

See our latest Future Market Networks analysis

What is Future Market Networks’ net debt?

The image below, which you can click on for more details, shows that Future Market Networks had debt of Rs 960.0 crore at the end of September 2022, a reduction of Rs 1.01 trillion over one year. . However, because it has a cash reserve of Rs 99.1 crore, its net debt is lower at around Rs 860.8 crore.

NSEI:FMNL Debt-to-Equity Track Record January 3, 2023

A look at Future Market Networks’ liabilities

The latest balance sheet data shows that Future Market Networks had liabilities of Rs 2.64 trillion due within a year, and liabilities of Rs 2.45 trillion due after that. To offset these obligations, it had cash of ₹99.1 million, as well as accounts receivable valued at ₹757.0 million due within 12 months. Therefore, your liabilities exceed the sum of your cash and receivables (short-term) by ₹4.23b.

This shortfall casts a shadow over the Rs 319.4 crore company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this closely. At the end of the day, Future Market Networks would probably need a major recapitalization if its creditors demanded payment.

We measure a company’s debt burden relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT) cover their interest. expense (interest coverage). Therefore, we consider debt in relation to earnings with and without depreciation and amortization expense.

While Future Market Networks has a fairly reasonable net debt to EBITDA multiple of 2.2, its interest coverage looks weak at 1.6. This suggests that the company is paying quite high interest rates. In either case, it’s safe to say that the company has significant debt. Notably, Future Market Networks’ EBIT launched ahead of Elon Musk’s, gaining 108% over last year. The balance sheet is clearly the area to focus on when analyzing debt. But you can’t view debt in total isolation; since Future Market Networks will need earnings to pay off that debt. So if you’re interested in finding out more about his earnings, it might be worth checking out this chart of his long-term earnings trend.

Finally, while the tax collector may love book profits, lenders only accept cold cash. So we clearly need to look at whether that EBIT is generating the corresponding free cash flow. In the past two years, Future Market Networks has experienced substantial negative free cash flow, in aggregate. While that may be the result of spending for growth, it makes debt much riskier.

our view

At first glance, Future Market Networks’ conversion of EBIT to free cash flow left us dubious about the stock, and its level of total liabilities was no more enticing than an empty restaurant on the busiest night of the year. But on the bright side, its EBIT growth rate is a good sign and makes us more optimistic. We are quite clear that we view Future Market Networks as quite risky, as a result of its balance sheet health. So we are almost as wary of these cattle as a hungry kitten falling into its owner’s fish pond: once bitten, twice shy, as they say. There is no doubt that we learn more about balance sheet debt. However, not all investment risk resides in the balance sheet, far from it. For example, we have identified 4 Warning Signs for Future Market Networks (3 are a bit worrisome) that you should be aware of.

If, after all that, you’re more interested in a fast-growing company with a rock-solid balance sheet, check out our list of net cash growth stocks without delay.

Valuation is complex, but we are helping to simplify it.

Find out if Future Market Networks is potentially overvalued or undervalued by consulting our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, internal transactions and financial health.

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This Simply Wall St article is general in nature. We provide feedback based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St does not have a position in any of the mentioned stocks.

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