Is DOMS Industries (NSE:DOMS) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 note that DOMS Industries Limited (NSE:DOMS) does have debt on its balance sheet. 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 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is DOMS Industries's Net Debt?

The image below, which you can click on for greater detail, shows that DOMS Industries had debt of ₹1.06b at the end of September 2025, a reduction from ₹1.43b over a year. However, it does have ₹1.62b in cash offsetting this, leading to net cash of ₹561.1m.

A Look At DOMS Industries' Liabilities

According to the last reported balance sheet, DOMS Industries had liabilities of ₹2.70b due within 12 months, and liabilities of ₹1.52b due beyond 12 months. Offsetting this, it had ₹1.62b in cash and ₹1.49b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.10b.

This state of affairs indicates that DOMS Industries' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹159.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, DOMS Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for DOMS Industries

Also good is that DOMS Industries grew its EBIT at 13% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if DOMS Industries can strengthen its balance sheet over time. 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. DOMS Industries 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. Over the last three years, DOMS Industries reported free cash flow worth 2.0% of its EBIT, which is really quite low. 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 DOMS Industries's liabilities, but we can be reassured by the fact it has has net cash of ₹561.1m. And it also grew its EBIT by 13% over the last year. So we don't have any problem with DOMS Industries's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for DOMS Industries you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.