Revathi Equipment India (NSE:RVTH) Has A Somewhat Strained Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Revathi Equipment India Limited (NSE:RVTH) 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 Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Revathi Equipment India Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Revathi Equipment India had debt of ₹369.5m, up from ₹306.8m in one year. However, its balance sheet shows it holds ₹792.4m in cash, so it actually has ₹422.9m net cash.

A Look At Revathi Equipment India's Liabilities

According to the last reported balance sheet, Revathi Equipment India had liabilities of ₹1.10b due within 12 months, and liabilities of ₹20.8m due beyond 12 months. Offsetting these obligations, it had cash of ₹792.4m as well as receivables valued at ₹305.9m due within 12 months. So it has liabilities totalling ₹22.5m more than its cash and near-term receivables, combined.

This state of affairs indicates that Revathi Equipment India's 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 ₹3.42b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Revathi Equipment India boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Revathi Equipment India

Importantly, Revathi Equipment India's EBIT fell a jaw-dropping 29% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Revathi Equipment India will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Revathi Equipment India 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. Looking at the most recent three years, Revathi Equipment India recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Revathi Equipment India has ₹422.9m in net cash. So although we see some areas for improvement, we're not too worried about Revathi Equipment India's balance sheet. 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. Case in point: We've spotted 3 warning signs for Revathi Equipment India you should be aware of, and 2 of them are concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.