Is Colgate-Palmolive (India) (NSE:COLPAL) A Risky Investment?

Explore Colgate-Palmolive (India)'s Fair Values from the Community and select yours

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.' 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. As with many other companies Colgate-Palmolive (India) Limited (NSE:COLPAL) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Colgate-Palmolive (India) Carry?

The image below, which you can click on for greater detail, shows that Colgate-Palmolive (India) had debt of ₹608.4m at the end of March 2025, a reduction from ₹717.5m over a year. However, its balance sheet shows it holds ₹6.68b in cash, so it actually has ₹6.07b net cash.

How Strong Is Colgate-Palmolive (India)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Colgate-Palmolive (India) had liabilities of ₹12.8b due within 12 months and liabilities of ₹769.4m due beyond that. On the other hand, it had cash of ₹6.68b and ₹2.35b worth of receivables due within a year. So its liabilities total ₹4.51b more than the combination of its cash and short-term receivables.

Having regard to Colgate-Palmolive (India)'s size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹618.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Colgate-Palmolive (India) also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Colgate-Palmolive (India)

But the other side of the story is that Colgate-Palmolive (India) saw its EBIT decline by 4.2% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Colgate-Palmolive (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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Colgate-Palmolive (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. During the last three years, Colgate-Palmolive (India) produced sturdy free cash flow equating to 73% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about Colgate-Palmolive (India)'s liabilities, but we can be reassured by the fact it has has net cash of ₹6.07b. The cherry on top was that in converted 73% of that EBIT to free cash flow, bringing in ₹13b. So is Colgate-Palmolive (India)'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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Colgate-Palmolive (India) you should know about.

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.