Is Refex Industries (NSE:REFEX) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Refex Industries Limited (NSE:REFEX) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Refex Industries's Debt?

The image below, which you can click on for greater detail, shows that Refex Industries had debt of ₹1.08b at the end of September 2025, a reduction from ₹1.31b over a year. However, it does have ₹3.71b in cash offsetting this, leading to net cash of ₹2.64b.

A Look At Refex Industries' Liabilities

We can see from the most recent balance sheet that Refex Industries had liabilities of ₹6.77b falling due within a year, and liabilities of ₹937.3m due beyond that. Offsetting this, it had ₹3.71b in cash and ₹8.20b in receivables that were due within 12 months. So it can boast ₹4.20b more liquid assets than total liabilities.

This short term liquidity is a sign that Refex Industries could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Refex Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Refex Industries

Also positive, Refex Industries grew its EBIT by 26% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Refex Industries will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Refex Industries 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, Refex Industries saw substantial negative free cash flow, in total. 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 Refex Industries has ₹2.64b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 26% over the last year. So we don't have any problem with Refex Industries's use of debt. 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. For example, we've discovered 3 warning signs for Refex Industries (2 are potentially serious!) that you should be aware of before investing here.

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.