Does Omax Autos (NSE:OMAXAUTO) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Omax Autos Limited (NSE:OMAXAUTO) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company 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 and debt together.

What Is Omax Autos's Debt?

As you can see below, Omax Autos had ₹704.4m of debt at March 2025, down from ₹1.10b a year prior. But on the other hand it also has ₹1.01b in cash, leading to a ₹307.9m net cash position.

How Strong Is Omax Autos' Balance Sheet?

According to the last reported balance sheet, Omax Autos had liabilities of ₹866.4m due within 12 months, and liabilities of ₹825.1m due beyond 12 months. On the other hand, it had cash of ₹1.01b and ₹112.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹567.2m.

This deficit isn't so bad because Omax Autos is worth ₹2.25b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Omax Autos also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Omax Autos

Notably, Omax Autos's EBIT launched higher than Elon Musk, gaining a whopping 111% on last year. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Omax Autos's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Omax Autos has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Omax Autos actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Omax Autos's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹307.9m. The cherry on top was that in converted 104% of that EBIT to free cash flow, bringing in ₹278m. So we don't think Omax Autos's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Omax Autos , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.