We Think Godfrey Phillips India (NSE:GODFRYPHLP) Can Stay On Top Of Its Debt

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.' 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. Importantly, Godfrey Phillips India Limited (NSE:GODFRYPHLP) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Godfrey Phillips India's Net Debt?

As you can see below, Godfrey Phillips India had ₹307.1m of debt at March 2025, down from ₹453.0m a year prior. But it also has ₹2.09b in cash to offset that, meaning it has ₹1.79b net cash.

A Look At Godfrey Phillips India's Liabilities

We can see from the most recent balance sheet that Godfrey Phillips India had liabilities of ₹14.3b falling due within a year, and liabilities of ₹2.85b due beyond that. Offsetting this, it had ₹2.09b in cash and ₹5.22b in receivables that were due within 12 months. So it has liabilities totalling ₹9.86b more than its cash and near-term receivables, combined.

Of course, Godfrey Phillips India has a market capitalization of ₹457.6b, so these liabilities are probably manageable. 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, Godfrey Phillips India boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Godfrey Phillips India

On top of that, Godfrey Phillips India grew its EBIT by 40% 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 ultimately the future profitability of the business will decide if Godfrey Phillips India can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Godfrey Phillips India 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. In the last three years, Godfrey Phillips India's free cash flow amounted to 35% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about Godfrey Phillips India's liabilities, but we can be reassured by the fact it has has net cash of ₹1.79b. And it impressed us with its EBIT growth of 40% over the last year. So we don't think Godfrey Phillips India's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Godfrey Phillips India (including 1 which is a bit unpleasant) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.