We Think Naman In-Store (India) (NSE:NAMAN) Is Taking Some Risk With Its Debt

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, Naman In-Store (India) Limited (NSE:NAMAN) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Naman In-Store (India) Carry?

The image below, which you can click on for greater detail, shows that Naman In-Store (India) had debt of ₹181.8m at the end of March 2025, a reduction from ₹371.9m over a year. But on the other hand it also has ₹235.4m in cash, leading to a ₹53.6m net cash position.

How Healthy Is Naman In-Store (India)'s Balance Sheet?

According to the last reported balance sheet, Naman In-Store (India) had liabilities of ₹316.1m due within 12 months, and liabilities of ₹76.3m due beyond 12 months. On the other hand, it had cash of ₹235.4m and ₹273.7m worth of receivables due within a year. So it can boast ₹116.7m more liquid assets than total liabilities.

This surplus suggests that Naman In-Store (India) has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Naman In-Store (India) has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Naman In-Store (India)

Shareholders should be aware that Naman In-Store (India)'s EBIT was down 37% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. There's no doubt that we learn most about debt from the balance sheet. But it is Naman In-Store (India)'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Naman In-Store (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. Over the last three years, Naman In-Store (India) saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Naman In-Store (India) has ₹53.6m in net cash and a decent-looking balance sheet. So although we see some areas for improvement, we're not too worried about Naman In-Store (India)'s balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Naman In-Store (India) (1 shouldn't be ignored) 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.