Does Gujarat Mineral Development (NSE:GMDCLTD) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Gujarat Mineral Development Corporation Limited (NSE:GMDCLTD) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Gujarat Mineral Development's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Gujarat Mineral Development had debt of ₹2.75b, up from none in one year. But it also has ₹5.95b in cash to offset that, meaning it has ₹3.20b net cash.

How Strong Is Gujarat Mineral Development's Balance Sheet?

We can see from the most recent balance sheet that Gujarat Mineral Development had liabilities of ₹5.85b falling due within a year, and liabilities of ₹9.62b due beyond that. Offsetting these obligations, it had cash of ₹5.95b as well as receivables valued at ₹969.5m due within 12 months. So its liabilities total ₹8.54b more than the combination of its cash and short-term receivables.

Since publicly traded Gujarat Mineral Development shares are worth a total of ₹180.5b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Gujarat Mineral Development boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Gujarat Mineral Development

Fortunately, Gujarat Mineral Development grew its EBIT by 3.7% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Gujarat Mineral Development 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 company can only pay off debt with cold hard cash, not accounting profits. Gujarat Mineral Development 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 three years, Gujarat Mineral Development reported free cash flow worth 14% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

We could understand if investors are concerned about Gujarat Mineral Development's liabilities, but we can be reassured by the fact it has has net cash of ₹3.20b. And it also grew its EBIT by 3.7% over the last year. So we are not troubled with Gujarat Mineral Development's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Gujarat Mineral Development has 4 warning signs (and 1 which is concerning) we think you should know about.

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.