R R Kabel (NSE:RRKABEL) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, '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. As with many other companies R R Kabel Limited (NSE:RRKABEL) makes use of debt. But the real question is whether this debt is making the company risky.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is R R Kabel's Net Debt?

The image below, which you can click on for greater detail, shows that R R Kabel had debt of ₹2.22b at the end of March 2025, a reduction from ₹2.89b over a year. However, its balance sheet shows it holds ₹2.79b in cash, so it actually has ₹572.5m net cash.

How Strong Is R R Kabel's Balance Sheet?

According to the last reported balance sheet, R R Kabel had liabilities of ₹12.6b due within 12 months, and liabilities of ₹1.02b due beyond 12 months. Offsetting these obligations, it had cash of ₹2.79b as well as receivables valued at ₹8.24b due within 12 months. So its liabilities total ₹2.61b more than the combination of its cash and short-term receivables.

This state of affairs indicates that R R Kabel's 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 ₹161.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, R R Kabel boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for R R Kabel

The good news is that R R Kabel has increased its EBIT by 4.4% over twelve months, which should ease any concerns about debt repayment. 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 R R Kabel 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 R R Kabel 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. During the last three years, R R Kabel produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that R R Kabel has ₹572.5m in net cash. So we are not troubled with R R Kabel'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. For example - R R Kabel has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.