These 4 Measures Indicate That Shaily Engineering Plastics (NSE:SHAILY) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Shaily Engineering Plastics Limited (NSE:SHAILY) does carry debt. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Shaily Engineering Plastics Carry?

The image below, which you can click on for greater detail, shows that at September 2025 Shaily Engineering Plastics had debt of ₹1.89b, up from ₹1.75b in one year. However, because it has a cash reserve of ₹252.9m, its net debt is less, at about ₹1.64b.

A Look At Shaily Engineering Plastics' Liabilities

Zooming in on the latest balance sheet data, we can see that Shaily Engineering Plastics had liabilities of ₹3.55b due within 12 months and liabilities of ₹640.9m due beyond that. Offsetting these obligations, it had cash of ₹252.9m as well as receivables valued at ₹2.13b due within 12 months. So it has liabilities totalling ₹1.81b more than its cash and near-term receivables, combined.

This state of affairs indicates that Shaily Engineering Plastics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹114.7b company is short on cash, but still worth keeping an eye on the balance sheet. But either way, Shaily Engineering Plastics has virtually no net debt, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Shaily Engineering Plastics

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Shaily Engineering Plastics has a low net debt to EBITDA ratio of only 0.66. And its EBIT covers its interest expense a whopping 14.1 times over. So we're pretty relaxed about its super-conservative use of debt. Even more impressive was the fact that Shaily Engineering Plastics grew its EBIT by 100% over twelve months. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Shaily Engineering Plastics'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. So we always check how much of that EBIT is translated into free cash flow. In the last three years, Shaily Engineering Plastics created free cash flow amounting to 7.4% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Our View

The good news is that Shaily Engineering Plastics's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. But we must concede we find its conversion of EBIT to free cash flow has the opposite effect. When we consider the range of factors above, it looks like Shaily Engineering Plastics is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Shaily Engineering Plastics that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.