Is Relaxo Footwears (NSE:RELAXO) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Relaxo Footwears Limited (NSE:RELAXO) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Relaxo Footwears Carry?

As you can see below, Relaxo Footwears had ₹2.13b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has ₹3.11b in cash to offset that, meaning it has ₹986.8m net cash.

How Strong Is Relaxo Footwears' Balance Sheet?

According to the last reported balance sheet, Relaxo Footwears had liabilities of ₹4.51b due within 12 months, and liabilities of ₹2.14b due beyond 12 months. On the other hand, it had cash of ₹3.11b and ₹3.24b worth of receivables due within a year. So it has liabilities totalling ₹292.3m more than its cash and near-term receivables, combined.

This state of affairs indicates that Relaxo Footwears' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹113.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Relaxo Footwears also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Relaxo Footwears

But the other side of the story is that Relaxo Footwears saw its EBIT decline by 9.1% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Relaxo Footwears'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Relaxo Footwears 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. During the last three years, Relaxo Footwears produced sturdy free cash flow equating to 72% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Relaxo Footwears has ₹986.8m in net cash. And it impressed us with free cash flow of ₹2.9b, being 72% of its EBIT. So we don't have any problem with Relaxo Footwears's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Relaxo Footwears, you may well want to click here to check an interactive graph of its earnings per share history.

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.