Is Shriram Pistons & Rings (NSE:SHRIPISTON) A Risky Investment?

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.' 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 can see that Shriram Pistons & Rings Limited (NSE:SHRIPISTON) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Shriram Pistons & Rings's Net Debt?

As you can see below, at the end of March 2025, Shriram Pistons & Rings had ₹5.08b of debt, up from ₹4.87b a year ago. Click the image for more detail. But on the other hand it also has ₹9.70b in cash, leading to a ₹4.62b net cash position.

How Healthy Is Shriram Pistons & Rings' Balance Sheet?

According to the last reported balance sheet, Shriram Pistons & Rings had liabilities of ₹9.21b due within 12 months, and liabilities of ₹3.10b due beyond 12 months. On the other hand, it had cash of ₹9.70b and ₹6.36b worth of receivables due within a year. So it can boast ₹3.74b more liquid assets than total liabilities.

This short term liquidity is a sign that Shriram Pistons & Rings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Shriram Pistons & Rings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Shriram Pistons & Rings

Also good is that Shriram Pistons & Rings grew its EBIT at 16% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Shriram Pistons & Rings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Shriram Pistons & Rings 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. During the last three years, Shriram Pistons & Rings produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Shriram Pistons & Rings has ₹4.62b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 16% over the last year. So is Shriram Pistons & Rings's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Shriram Pistons & Rings , 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.