Is Grindwell Norton (NSE:GRINDWELL) Using Too Much Debt?

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.' 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. We can see that Grindwell Norton Limited (NSE:GRINDWELL) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Grindwell Norton's Net Debt?

The chart below, which you can click on for greater detail, shows that Grindwell Norton had ₹835.5m in debt in March 2025; about the same as the year before. But it also has ₹8.78b in cash to offset that, meaning it has ₹7.95b net cash.

How Strong Is Grindwell Norton's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Grindwell Norton had liabilities of ₹6.36b due within 12 months and liabilities of ₹1.51b due beyond that. On the other hand, it had cash of ₹8.78b and ₹3.80b worth of receivables due within a year. So it can boast ₹4.71b more liquid assets than total liabilities.

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

View our latest analysis for Grindwell Norton

On the other hand, Grindwell Norton saw its EBIT drop by 6.4% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Grindwell Norton can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Grindwell Norton 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. Over the most recent three years, Grindwell Norton recorded free cash flow worth 59% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Grindwell Norton has net cash of ₹7.95b, as well as more liquid assets than liabilities. So we are not troubled with Grindwell Norton's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Grindwell Norton, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.