These 4 Measures Indicate That Cupid (NSE:CUPID) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Cupid Limited (NSE:CUPID) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Cupid's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Cupid had debt of ₹189.9m, up from ₹120.6m in one year. However, its balance sheet shows it holds ₹1.55b in cash, so it actually has ₹1.36b net cash.

How Healthy Is Cupid's Balance Sheet?

The latest balance sheet data shows that Cupid had liabilities of ₹212.0m due within a year, and liabilities of ₹83.9m falling due after that. Offsetting this, it had ₹1.55b in cash and ₹675.2m in receivables that were due within 12 months. So it actually has ₹1.93b more liquid assets than total liabilities.

This short term liquidity is a sign that Cupid could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Cupid has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Cupid

But the bad news is that Cupid has seen its EBIT plunge 10% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Cupid 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Cupid 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 last three years, Cupid saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cupid has ₹1.36b in net cash and a decent-looking balance sheet. So we are not troubled with Cupid's debt use. We'd be motivated to research the stock further if we found out that Cupid insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.