Suzlon Energy (NSE:SUZLON) Seems To Use Debt Quite Sensibly

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Suzlon Energy Limited (NSE:SUZLON) does carry debt. But is this debt a concern to shareholders?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Suzlon Energy's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Suzlon Energy had debt of ₹3.20b, up from ₹2.32b in one year. However, its balance sheet shows it holds ₹9.03b in cash, so it actually has ₹5.83b net cash.

How Strong Is Suzlon Energy's Balance Sheet?

The latest balance sheet data shows that Suzlon Energy had liabilities of ₹70.2b due within a year, and liabilities of ₹9.71b falling due after that. Offsetting these obligations, it had cash of ₹9.03b as well as receivables valued at ₹49.3b due within 12 months. So it has liabilities totalling ₹21.6b more than its cash and near-term receivables, combined.

Of course, Suzlon Energy has a market capitalization of ₹748.8b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Suzlon Energy also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Suzlon Energy

Better yet, Suzlon Energy grew its EBIT by 103% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Suzlon Energy 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Suzlon Energy 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. In the last three years, Suzlon Energy created free cash flow amounting to 16% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

We could understand if investors are concerned about Suzlon Energy's liabilities, but we can be reassured by the fact it has has net cash of ₹5.83b. And we liked the look of last year's 103% year-on-year EBIT growth. So we don't think Suzlon Energy's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Suzlon Energy has 1 warning sign we think you should be aware of.

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.

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.