Examining the Financial Health of Companies with the Highest Debt-to-Equity (D/E) Ratios

The financial health of a company is often gauged by various metrics, among which the debt-to-equity ratio is a critical indicator. High debt levels can be a double-edged sword; while they can fuel growth, they also carry significant risks. This article analyses the performance of companies with the highest debt-to-equity ratios, examining their sales, profit, and overall financial health over the past year.

Analysing High-Debt Companies

Digicontent

Digicontent, with a debt-to-equity ratio of 136.49, has shown a commendable performance over the past year. The company’s current market price stands at Rs 23.3, with a market capitalisation of Rs 135.58 crore. Despite its high debt load, Digicontent’s 1-year return is an impressive 61.72%. The company’s sales in FY24 were Rs 414.56 crore, up from Rs 349.27 crore in FY23. Notably, Digicontent swung to a net profit of Rs 5.74 crore in FY24 from a loss of Rs 12.87 crore in FY23. This turnaround is reflected in its net profit margin (NPM) improvement from -3.68% to 1.38%. The return on assets (ROA) stands at 2.47%, and the return on capital employed (ROCE) is 20.04%, indicating efficient use of capital despite the high debt.

Kimia Biosciences

Kimia Biosciences presents a mixed picture with a debt-to-equity ratio of 132.42. Its current market price is Rs 49.66, and it has a market capitalisation of Rs 234.96 crore. Over the past year, Kimia Biosciences has returned 32.49%. However, the company reported a decline in sales from Rs 128.52 crore in FY23 to Rs 104.88 crore in FY24. The net loss narrowed from Rs 8.30 crore to Rs 5.31 crore, with the NPM slightly improving from -6.46% to -5.06%. Despite these losses, the company managed to reduce its debt slightly to Rs 43.70 crore.

Nilachal Refractories

Nilachal Refractories has struggled significantly, with a debt-to-equity ratio of 74.72. The company’s current market price is Rs 49.6, with a market capitalisation of Rs 100.99 crore. Over the past year, the stock returned 36.45%. However, its sales remained minimal at Rs 1.29 crore in FY24, up from Rs 1.06 crore in FY23. The company reported a substantial net loss of Rs 6.50 crore in FY24, worsening from Rs 1.81 crore in FY23. This resulted in a drastic NPM of -503.88%. The ROA is at -14.37%, and the ROCE is -2.02%, indicating severe inefficiency and financial distress.

Jyoti Structures

Jyoti Structures stands out with a high debt-to-equity ratio of 71.11 but has shown remarkable resilience. The company’s current market price is Rs 26.18, with a market capitalisation of Rs 2,218.4 crore. The stock has returned a staggering 192.53% over the past year. Sales surged to Rs 451.38 crore in FY24 from Rs 229.23 crore in FY23, and the company turned a profit of Rs 28.86 crore, up from a loss of Rs 4.07 crore. The NPM improved significantly to 6.39% from -1.78%. Jyoti Structures’ ROA is 1.25%, and ROCE is 1.1%, reflecting modest efficiency improvements.

Artson Engineering

Artson Engineering, with a debt-to-equity ratio of 69.22, has also demonstrated robust performance. Its current market price is Rs 175.75, with a market capitalisation of Rs 648.88 crore. The stock returned 162.86% over the past year. Sales slightly decreased to Rs 128.12 crore in FY24 from Rs 131.42 crore in FY23. However, the company turned a net profit of Rs 6.05 crore from a loss of Rs 23.64 crore, improving its NPM from -17.99% to 4.72%. The ROA stands at 3.94%, and the ROCE at 23.21%, indicating strong operational efficiency despite the high debt.

Debt Management and Risk

It’s crucial to remember that debt can be a powerful tool for growth and expansion. However, it’s equally important to manage debt responsibly. Companies with high debt ratios need to demonstrate strong profitability and cash flow generation to ensure they can meet their debt obligations. The data suggests that companies with high debt can be successful, but it also highlights the inherent risks associated with excessive leverage.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.