Axita Cotton (NSE:AXITA) Is Making Moderate Use Of 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.' 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 note that Axita Cotton Limited (NSE:AXITA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Axita Cotton's Net Debt?

As you can see below, at the end of September 2025, Axita Cotton had ₹213.5m of debt, up from ₹10.0m a year ago. Click the image for more detail. However, because it has a cash reserve of ₹97.4m, its net debt is less, at about ₹116.1m.

A Look At Axita Cotton's Liabilities

The latest balance sheet data shows that Axita Cotton had liabilities of ₹316.0m due within a year, and liabilities of ₹13.4m falling due after that. Offsetting these obligations, it had cash of ₹97.4m as well as receivables valued at ₹341.4m due within 12 months. So it can boast ₹109.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Axita Cotton could probably pay off its debt with ease, as its balance sheet is far from stretched. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Axita Cotton'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.

View our latest analysis for Axita Cotton

Over 12 months, Axita Cotton made a loss at the EBIT level, and saw its revenue drop to ₹5.9b, which is a fall of 24%. That makes us nervous, to say the least.

Caveat Emptor

While Axita Cotton's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₹61m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Axita Cotton that 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.