Metropolis Healthcare (NSE:METROPOLIS) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Metropolis Healthcare Limited (NSE:METROPOLIS) does use debt in its business. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is Metropolis Healthcare's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Metropolis Healthcare had debt of ₹207.1m, up from none in one year. But it also has ₹795.8m in cash to offset that, meaning it has ₹588.6m net cash.

A Look At Metropolis Healthcare's Liabilities

According to the last reported balance sheet, Metropolis Healthcare had liabilities of ₹3.02b due within 12 months, and liabilities of ₹2.47b due beyond 12 months. On the other hand, it had cash of ₹795.8m and ₹1.76b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹2.94b.

Given Metropolis Healthcare has a market capitalization of ₹105.2b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Metropolis Healthcare also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Metropolis Healthcare

Metropolis Healthcare's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of 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 Metropolis Healthcare'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 Metropolis Healthcare 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. During the last three years, Metropolis Healthcare generated free cash flow amounting to a very robust 91% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

We could understand if investors are concerned about Metropolis Healthcare's liabilities, but we can be reassured by the fact it has has net cash of ₹588.6m. The cherry on top was that in converted 91% of that EBIT to free cash flow, bringing in ₹1.8b. So we don't think Metropolis Healthcare's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Metropolis Healthcare's earnings per share history for free.

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.