TAKE Solutions (NSE: TAKE) makes moderate use of debt

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but the fact that you suffer a permanent loss of capital. “. It is natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We notice that TAKE Solutions Limited (NSE: TAKE) has debt on its balance sheet. But does this debt worry shareholders?

When is debt dangerous?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its 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. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

Check out our latest review for TAKE Solutions

What is TAKE Solutions’ net debt?

As you can see below, TAKE Solutions had 4.50 billion yen in debt in March 2021, up from 5.53 billion yen the previous year. However, since it has a cash reserve of 1.72 billion yen, its net debt is less, at around 2.78 billion yen.

How healthy is TAKE Solutions’ balance sheet?

Zooming in on the latest balance sheet data, we can see that TAKE Solutions had 5.24 billion yen in liabilities due within 12 months and 1.96 billion yen liabilities beyond. In compensation for these obligations, he had cash of 1.72 billion euros as well as receivables valued at 4.90 billion euros at 12 months. It therefore has liabilities totaling 585.5 million euros more than its combined cash and short-term receivables.

Considering that TAKE Solutions has a market cap of 9.21b, it is hard to believe that these liabilities pose a significant threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in isolation; since TAKE Solutions will need income to repay this debt. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.

Over 12 months, TAKE Solutions recorded a loss in EBIT and saw its turnover fall to 7.7 billion euros, a decrease of 65%. It makes us nervous, to say the least.

Emptor Warning

Not only has TAKE Solutions’ revenue declined over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). Its EBIT loss was 1.9 billion yen. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. We would feel better if he turned his loss of 4.5 billion yen over the last twelve months into a profit. In the meantime, we consider the title to be very risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we have identified 3 warning signs for TAKE Solutions (1 cannot be ignored) you must be aware.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

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