Is Crompton Greaves Consumer Electricals (NSE:CROMPTON) 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Crompton Greaves Consumer Electricals Carry?

You can click the graphic below for the historical numbers, but it shows that Crompton Greaves Consumer Electricals had ₹4.79b of debt in March 2025, down from ₹6.83b, one year before. But on the other hand it also has ₹10.6b in cash, leading to a ₹5.86b net cash position.

How Healthy Is Crompton Greaves Consumer Electricals' Balance Sheet?

We can see from the most recent balance sheet that Crompton Greaves Consumer Electricals had liabilities of ₹21.5b falling due within a year, and liabilities of ₹3.34b due beyond that. On the other hand, it had cash of ₹10.6b and ₹7.60b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹6.57b.

Since publicly traded Crompton Greaves Consumer Electricals shares are worth a total of ₹212.5b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Crompton Greaves Consumer Electricals also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Crompton Greaves Consumer Electricals

Also good is that Crompton Greaves Consumer Electricals grew its EBIT at 11% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Crompton Greaves Consumer Electricals 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Crompton Greaves Consumer Electricals 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, Crompton Greaves Consumer Electricals recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Crompton Greaves Consumer Electricals's liabilities, but we can be reassured by the fact it has has net cash of ₹5.86b. The cherry on top was that in converted 94% of that EBIT to free cash flow, bringing in ₹6.3b. So is Crompton Greaves Consumer Electricals's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Crompton Greaves Consumer Electricals that you should be aware of before investing here.

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.