These 4 Measures Indicate That Sona BLW Precision Forgings (NSE:SONACOMS) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Sona BLW Precision Forgings Limited (NSE:SONACOMS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Sona BLW Precision Forgings's Debt?

You can click the graphic below for the historical numbers, but it shows that Sona BLW Precision Forgings had ₹134.6m of debt in March 2025, down from ₹2.33b, one year before. But on the other hand it also has ₹21.2b in cash, leading to a ₹21.1b net cash position.

How Strong Is Sona BLW Precision Forgings' Balance Sheet?

According to the last reported balance sheet, Sona BLW Precision Forgings had liabilities of ₹5.49b due within 12 months, and liabilities of ₹3.43b due beyond 12 months. Offsetting this, it had ₹21.2b in cash and ₹7.05b in receivables that were due within 12 months. So it can boast ₹19.3b more liquid assets than total liabilities.

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

View our latest analysis for Sona BLW Precision Forgings

Fortunately, Sona BLW Precision Forgings grew its EBIT by 4.4% in the last year, making that debt load look even more manageable. 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 Sona BLW Precision Forgings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Sona BLW Precision Forgings 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. Looking at the most recent three years, Sona BLW Precision Forgings recorded free cash flow of 49% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sona BLW Precision Forgings has ₹21.1b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 4.4% in the last twelve months. So is Sona BLW Precision Forgings's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Sona BLW Precision Forgings's earnings per share history for free.

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.