These 4 Measures Indicate That Ujaas Energy (NSE:UEL) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Ujaas Energy Limited (NSE:UEL) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Ujaas Energy's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Ujaas Energy had ₹240.0m of debt, an increase on ₹185.1m, over one year. However, it also had ₹146.6m in cash, and so its net debt is ₹93.4m.

How Healthy Is Ujaas Energy's Balance Sheet?

We can see from the most recent balance sheet that Ujaas Energy had liabilities of ₹267.7m falling due within a year, and liabilities of ₹4.64m due beyond that. Offsetting this, it had ₹146.6m in cash and ₹373.6m in receivables that were due within 12 months. So it can boast ₹247.9m more liquid assets than total liabilities.

This state of affairs indicates that Ujaas Energy's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹38.2b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Ujaas Energy has a very light debt load indeed.

View our latest analysis for Ujaas Energy

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Ujaas Energy has barely any net debt, as demonstrated by its net debt to EBITDA ratio of only -8.4. Humorously, it actually received more in interest over the last twelve months than it had to pay. So there's no doubt this company can take on debt as easily as enthusiastic spray-tanners take on an orange hue. Although Ujaas Energy made a loss at the EBIT level, last year, it was also good to see that it generated ₹1.4m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Ujaas Energy's earnings that will influence how the balance sheet holds up in the future. 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. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. Happily for any shareholders, Ujaas Energy actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

Happily, Ujaas Energy's impressive net debt to EBITDA implies it has the upper hand on its debt. And the good news does not stop there, as its interest cover also supports that impression! Zooming out, Ujaas Energy seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. 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. Case in point: We've spotted 3 warning signs for Ujaas Energy you should be aware of, and 1 of them is significant.

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.

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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.