Is Libas Consumer Products (NSE:LIBAS) A Risky Investment?

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 can see that Libas Consumer Products Limited (NSE:LIBAS) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Libas Consumer Products Carry?

The image below, which you can click on for greater detail, shows that Libas Consumer Products had debt of ₹149.9m at the end of March 2025, a reduction from ₹159.2m over a year. However, its balance sheet shows it holds ₹197.4m in cash, so it actually has ₹47.5m net cash.

How Healthy Is Libas Consumer Products' Balance Sheet?

We can see from the most recent balance sheet that Libas Consumer Products had liabilities of ₹280.9m falling due within a year, and liabilities of ₹14.4m due beyond that. On the other hand, it had cash of ₹197.4m and ₹416.6m worth of receivables due within a year. So it can boast ₹318.7m more liquid assets than total liabilities.

This surplus strongly suggests that Libas Consumer Products has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Libas Consumer Products boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Libas Consumer Products

Notably, Libas Consumer Products made a loss at the EBIT level, last year, but improved that to positive EBIT of ₹41m in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is Libas Consumer Products'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Libas Consumer Products 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 year, Libas Consumer Products actually produced more free cash flow than EBIT. 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 we empathize with investors who find debt concerning, the bottom line is that Libas Consumer Products has net cash of ₹47.5m and plenty of liquid assets. And it impressed us with free cash flow of ₹91m, being 222% of its EBIT. So is Libas Consumer Products's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Libas Consumer Products (of which 1 doesn't sit too well with us!) you should know about.

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.