We Think Precision Metaliks (NSE:PRECISION) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Precision Metaliks Limited (NSE:PRECISION) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Precision Metaliks Carry?

The chart below, which you can click on for greater detail, shows that Precision Metaliks had ₹393.9m in debt in March 2025; about the same as the year before. But on the other hand it also has ₹412.4m in cash, leading to a ₹18.4m net cash position.

How Healthy Is Precision Metaliks' Balance Sheet?

According to the balance sheet data, Precision Metaliks had liabilities of ₹1.25b due within 12 months, but no longer term liabilities. Offsetting these obligations, it had cash of ₹412.4m as well as receivables valued at ₹1.62b due within 12 months. So it actually has ₹781.6m more liquid assets than total liabilities.

This luscious liquidity implies that Precision Metaliks' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Precision Metaliks boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Precision Metaliks

In fact Precision Metaliks's saving grace is its low debt levels, because its EBIT has tanked 98% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is Precision Metaliks's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Precision Metaliks may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Precision Metaliks saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, the bottom line is that Precision Metaliks has net cash of ₹18.4m and plenty of liquid assets. So we are not troubled with Precision Metaliks's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Precision Metaliks (of which 1 is concerning!) you should know about.

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.