These 4 Measures Indicate That Vedant Fashions (NSE:MANYAVAR) Is Using Debt Safely

Warren Buffett famously said, '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 Vedant Fashions Limited (NSE:MANYAVAR) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Vedant Fashions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Vedant Fashions had ₹4.83b of debt, an increase on ₹4.44b, over one year. However, it does have ₹7.26b in cash offsetting this, leading to net cash of ₹2.43b.

How Strong Is Vedant Fashions' Balance Sheet?

We can see from the most recent balance sheet that Vedant Fashions had liabilities of ₹4.00b falling due within a year, and liabilities of ₹5.60b due beyond that. On the other hand, it had cash of ₹7.26b and ₹6.20b worth of receivables due within a year. So it actually has ₹3.86b more liquid assets than total liabilities.

This short term liquidity is a sign that Vedant Fashions could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Vedant Fashions has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Vedant Fashions

The good news is that Vedant Fashions has increased its EBIT by 3.0% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Vedant Fashions's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Vedant Fashions 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, Vedant Fashions generated free cash flow amounting to a very robust 85% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Vedant Fashions has ₹2.43b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in ₹3.9b. So we don't think Vedant Fashions's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Vedant Fashions, you may well want to click here to check an interactive graph of its earnings per share history.

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.