Is ShreeOswal Seeds and Chemicals (NSE:OSWALSEEDS) Using Too Much 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.' 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. Importantly, ShreeOswal Seeds and Chemicals Limited (NSE:OSWALSEEDS) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 ShreeOswal Seeds and Chemicals Carry?

You can click the graphic below for the historical numbers, but it shows that ShreeOswal Seeds and Chemicals had ₹419.3m of debt in March 2025, down from ₹638.6m, one year before. And it doesn't have much cash, so its net debt is about the same.

How Strong Is ShreeOswal Seeds and Chemicals' Balance Sheet?

We can see from the most recent balance sheet that ShreeOswal Seeds and Chemicals had liabilities of ₹591.3m falling due within a year, and liabilities of ₹22.5m due beyond that. Offsetting these obligations, it had cash of ₹4.95m as well as receivables valued at ₹137.4m due within 12 months. So its liabilities total ₹471.5m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because ShreeOswal Seeds and Chemicals is worth ₹1.49b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt.

Check out our latest analysis for ShreeOswal Seeds and Chemicals

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.

ShreeOswal Seeds and Chemicals's net debt is sitting at a very reasonable 1.8 times its EBITDA, while its EBIT covered its interest expense just 6.1 times last year. While that doesn't worry us too much, it does suggest the interest payments are somewhat of a burden. We also note that ShreeOswal Seeds and Chemicals improved its EBIT from a last year's loss to a positive ₹223m. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ShreeOswal Seeds and Chemicals will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Over the last year, ShreeOswal Seeds and Chemicals actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

The good news is that ShreeOswal Seeds and Chemicals's demonstrated ability to convert EBIT to free cash flow delights us like a fluffy puppy does a toddler. And its interest cover is good too. All these things considered, it appears that ShreeOswal Seeds and Chemicals can comfortably handle its current debt levels. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. 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. To that end, you should learn about the 4 warning signs we've spotted with ShreeOswal Seeds and Chemicals (including 1 which doesn't sit too well with us) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.