R & B Denims (NSE:RNBDENIMS) Has A Pretty Healthy Balance Sheet

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.' 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 note that R & B Denims Limited (NSE:RNBDENIMS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is R & B Denims's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 R & B Denims had ₹942.3m of debt, an increase on ₹681.5m, over one year. However, because it has a cash reserve of ₹116.6m, its net debt is less, at about ₹825.7m.

How Healthy Is R & B Denims' Balance Sheet?

According to the last reported balance sheet, R & B Denims had liabilities of ₹984.1m due within 12 months, and liabilities of ₹189.4m due beyond 12 months. Offsetting these obligations, it had cash of ₹116.6m as well as receivables valued at ₹1.12b due within 12 months. So it actually has ₹63.0m more liquid assets than total liabilities.

Having regard to R & B Denims' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹10.4b company is struggling for cash, we still think it's worth monitoring its balance sheet.

View our latest analysis for R & B Denims

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

R & B Denims's net debt to EBITDA ratio of about 1.8 suggests only moderate use of debt. And its strong interest cover of 19.8 times, makes us even more comfortable. Importantly R & B Denims's EBIT was essentially flat over the last twelve months. We would prefer to see some earnings growth, because that always helps diminish debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is R & B Denims's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the most recent three years, R & B Denims recorded free cash flow worth 54% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

R & B Denims's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And its level of total liabilities is good too. All these things considered, it appears that R & B Denims can comfortably handle its current debt levels. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. 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. Be aware that R & B Denims is showing 2 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.