S.J.S. Enterprises (NSE:SJS) Could Easily Take On More Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies S.J.S. Enterprises Limited (NSE:SJS) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does S.J.S. Enterprises Carry?

The image below, which you can click on for greater detail, shows that S.J.S. Enterprises had debt of ₹371.7m at the end of March 2025, a reduction from ₹842.1m over a year. However, its balance sheet shows it holds ₹1.03b in cash, so it actually has ₹653.8m net cash.

How Healthy Is S.J.S. Enterprises' Balance Sheet?

We can see from the most recent balance sheet that S.J.S. Enterprises had liabilities of ₹1.41b falling due within a year, and liabilities of ₹434.2m due beyond that. Offsetting these obligations, it had cash of ₹1.03b as well as receivables valued at ₹1.77b due within 12 months. So it can boast ₹943.9m more liquid assets than total liabilities.

This surplus suggests that S.J.S. Enterprises has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, S.J.S. Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for S.J.S. Enterprises

Also positive, S.J.S. Enterprises grew its EBIT by 20% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if S.J.S. Enterprises can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. S.J.S. Enterprises 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, S.J.S. Enterprises produced sturdy free cash flow equating to 74% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that S.J.S. Enterprises has net cash of ₹653.8m, as well as more liquid assets than liabilities. The cherry on top was that in converted 74% of that EBIT to free cash flow, bringing in ₹1.2b. So we don't think S.J.S. Enterprises's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in S.J.S. Enterprises, you may well want to click here to check an interactive graph of its earnings per share history.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.