We Think Crompton Greaves Consumer Electricals (NSE:CROMPTON) Can Manage Its Debt With Ease

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) makes use of debt. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Crompton Greaves Consumer Electricals Carry?

The image below, which you can click on for greater detail, shows that Crompton Greaves Consumer Electricals had debt of ₹3.00b at the end of March 2025, a reduction from ₹5.99b over a year. However, its balance sheet shows it holds ₹10.7b in cash, so it actually has ₹7.74b net cash.

How Healthy Is Crompton Greaves Consumer Electricals' Balance Sheet?

According to the last reported balance sheet, Crompton Greaves Consumer Electricals had liabilities of ₹21.5b due within 12 months, and liabilities of ₹3.34b due beyond 12 months. Offsetting this, it had ₹10.7b in cash and ₹6.92b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹7.16b.

Given Crompton Greaves Consumer Electricals has a market capitalization of ₹226.1b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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.

View our latest analysis for Crompton Greaves Consumer Electricals

On top of that, Crompton Greaves Consumer Electricals grew its EBIT by 37% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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 91% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

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 ₹7.74b. And it impressed us with free cash flow of ₹6.3b, being 91% of its EBIT. So we don't think Crompton Greaves Consumer Electricals's use of debt is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Crompton Greaves Consumer Electricals you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.