We Think Garware Technical Fibres (NSE:GARFIBRES) 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 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. We note that Garware Technical Fibres Limited (NSE:GARFIBRES) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Garware Technical Fibres Carry?

As you can see below, Garware Technical Fibres had ₹648.6m of debt at March 2025, down from ₹1.23b a year prior. However, its balance sheet shows it holds ₹1.60b in cash, so it actually has ₹951.9m net cash.

How Strong Is Garware Technical Fibres' Balance Sheet?

We can see from the most recent balance sheet that Garware Technical Fibres had liabilities of ₹4.51b falling due within a year, and liabilities of ₹638.1m due beyond that. Offsetting these obligations, it had cash of ₹1.60b as well as receivables valued at ₹3.18b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹374.0m.

Having regard to Garware Technical Fibres' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹78.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Garware Technical Fibres also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Garware Technical Fibres

And we also note warmly that Garware Technical Fibres grew its EBIT by 12% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Garware Technical Fibres's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Garware Technical Fibres 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. During the last three years, Garware Technical Fibres produced sturdy free cash flow equating to 66% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Garware Technical Fibres has ₹951.9m in net cash. So we don't think Garware Technical Fibres's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Garware Technical Fibres's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.