Does Avanti Feeds (NSE:AVANTIFEED) Have A 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.' 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 Avanti Feeds Limited (NSE:AVANTIFEED) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Avanti Feeds Carry?

As you can see below, Avanti Feeds had ₹132.5m of debt at March 2025, down from ₹139.4m a year prior. But it also has ₹19.4b in cash to offset that, meaning it has ₹19.3b net cash.

How Healthy Is Avanti Feeds' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Avanti Feeds had liabilities of ₹4.53b due within 12 months and liabilities of ₹549.3m due beyond that. On the other hand, it had cash of ₹19.4b and ₹1.41b worth of receivables due within a year. So it actually has ₹15.7b more liquid assets than total liabilities.

This surplus suggests that Avanti Feeds is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Avanti Feeds has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Avanti Feeds

On top of that, Avanti Feeds grew its EBIT by 43% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Avanti Feeds'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. While Avanti Feeds 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. Over the most recent three years, Avanti Feeds recorded free cash flow worth 64% 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.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Avanti Feeds has net cash of ₹19.3b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 43% over the last year. So is Avanti Feeds's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Avanti Feeds you should be aware of.

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.