Does Azad Engineering (NSE:AZAD) Have A Healthy Balance Sheet?

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. As with many other companies Azad Engineering Limited (NSE:AZAD) makes use of debt. 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. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Azad Engineering's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Azad Engineering had debt of ₹2.44b, up from ₹371.6m in one year. However, it does have ₹6.97b in cash offsetting this, leading to net cash of ₹4.53b.

A Look At Azad Engineering's Liabilities

Zooming in on the latest balance sheet data, we can see that Azad Engineering had liabilities of ₹2.30b due within 12 months and liabilities of ₹2.38b due beyond that. Offsetting these obligations, it had cash of ₹6.97b as well as receivables valued at ₹2.23b due within 12 months. So it can boast ₹4.53b more liquid assets than total liabilities.

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

See our latest analysis for Azad Engineering

In addition to that, we're happy to report that Azad Engineering has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Azad Engineering'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Azad Engineering 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, Azad Engineering burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Azad Engineering has ₹4.53b in net cash and a decent-looking balance sheet. And we liked the look of last year's 37% year-on-year EBIT growth. So we are not troubled with Azad Engineering's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Azad Engineering , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.