These 4 Measures Indicate That Uniparts India (NSE:UNIPARTS) Is Using Debt Reasonably Well

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Uniparts India Limited (NSE:UNIPARTS) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Uniparts India's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Uniparts India had debt of ₹837.8m, up from ₹619.2m in one year. But on the other hand it also has ₹2.76b in cash, leading to a ₹1.92b net cash position.

How Healthy Is Uniparts India's Balance Sheet?

We can see from the most recent balance sheet that Uniparts India had liabilities of ₹2.16b falling due within a year, and liabilities of ₹660.7m due beyond that. Offsetting this, it had ₹2.76b in cash and ₹1.18b in receivables that were due within 12 months. So it actually has ₹1.11b more liquid assets than total liabilities.

This surplus suggests that Uniparts India has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Uniparts India boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Uniparts India

It is just as well that Uniparts India's load is not too heavy, because its EBIT was down 31% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Uniparts India will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Uniparts India 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. Happily for any shareholders, Uniparts India actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Uniparts India has net cash of ₹1.92b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹1.5b, being 107% of its EBIT. So we are not troubled with Uniparts India'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. We've identified 1 warning sign with Uniparts India , and understanding them should be part of your investment process.

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.