We Think IFB Industries (NSE:IFBIND) Can Manage Its Debt With Ease

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies IFB Industries Limited (NSE:IFBIND) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is IFB Industries's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 IFB Industries had ₹858.8m of debt, an increase on ₹694.2m, over one year. But it also has ₹3.39b in cash to offset that, meaning it has ₹2.53b net cash.

How Strong Is IFB Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that IFB Industries had liabilities of ₹11.6b due within 12 months and liabilities of ₹4.98b due beyond that. On the other hand, it had cash of ₹3.39b and ₹4.99b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹8.20b.

Given IFB Industries has a market capitalization of ₹48.9b, it's hard to believe these liabilities pose much 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, IFB Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for IFB Industries

Better yet, IFB Industries grew its EBIT by 122% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if IFB Industries can strengthen its balance sheet over time. 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. IFB Industries 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. Happily for any shareholders, IFB Industries actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While IFB Industries does have more liabilities than liquid assets, it also has net cash of ₹2.53b. And it impressed us with free cash flow of ₹2.0b, being 185% of its EBIT. So is IFB Industries's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in IFB Industries would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link .

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.