Is Jupiter Wagons (NSE:JWL) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Jupiter Wagons Limited (NSE:JWL) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 2 warning signs about Jupiter Wagons. View them for free.

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Jupiter Wagons's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Jupiter Wagons had ₹4.84b of debt, an increase on ₹3.38b, over one year. But on the other hand it also has ₹7.24b in cash, leading to a ₹2.40b net cash position.

How Strong Is Jupiter Wagons' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jupiter Wagons had liabilities of ₹11.6b due within 12 months and liabilities of ₹709.0m due beyond that. Offsetting this, it had ₹7.24b in cash and ₹8.20b in receivables that were due within 12 months. So it actually has ₹3.12b more liquid assets than total liabilities.

This state of affairs indicates that Jupiter Wagons' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹168.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Jupiter Wagons boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Jupiter Wagons

Also good is that Jupiter Wagons grew its EBIT at 14% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jupiter Wagons'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Jupiter Wagons 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. Over the last three years, Jupiter Wagons saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Jupiter Wagons has net cash of ₹2.40b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 14% in the last twelve months. So we are not troubled with Jupiter Wagons's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Jupiter Wagons (at least 1 which is significant) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.