These 4 Measures Indicate That Suzlon Energy (NSE:SUZLON) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Suzlon Energy Limited (NSE:SUZLON) does carry debt. But is this debt a concern to shareholders?

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.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Suzlon Energy's Debt?

As you can see below, at the end of December 2024, Suzlon Energy had ₹2.30b of debt, up from ₹1.46b a year ago. Click the image for more detail. But on the other hand it also has ₹13.4b in cash, leading to a ₹11.1b net cash position.

How Strong Is Suzlon Energy's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Suzlon Energy had liabilities of ₹42.9b due within 12 months and liabilities of ₹10.9b due beyond that. Offsetting these obligations, it had cash of ₹13.4b as well as receivables valued at ₹28.6b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹11.8b.

Having regard to Suzlon Energy's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹723.4b company is short on cash, but still worth keeping an eye on the balance sheet. 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.

See our latest analysis for Suzlon Energy

In addition to that, we're happy to report that Suzlon Energy has boosted its EBIT by 91%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Suzlon Energy'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. Suzlon Energy 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. In the last three years, Suzlon Energy's free cash flow amounted to 40% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Suzlon Energy has ₹11.1b in net cash. And we liked the look of last year's 91% year-on-year EBIT growth. So is Suzlon Energy's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Suzlon Energy, you may well want to click here to check an interactive graph of its earnings per share history .

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.

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.