These 4 Measures Indicate That Ambuja Cements (NSE:AMBUJACEM) Is Using Debt Extensively

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Ambuja Cements Limited (NSE:AMBUJACEM) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Ambuja Cements's Net Debt?

The image below, which you can click on for greater detail, shows that Ambuja Cements had debt of ₹268.2m at the end of March 2025, a reduction from ₹367.8m over a year. But on the other hand it also has ₹78.1b in cash, leading to a ₹77.9b net cash position.

A Look At Ambuja Cements' Liabilities

Zooming in on the latest balance sheet data, we can see that Ambuja Cements had liabilities of ₹138.5b due within 12 months and liabilities of ₹32.9b due beyond that. Offsetting these obligations, it had cash of ₹78.1b as well as receivables valued at ₹33.9b due within 12 months. So it has liabilities totalling ₹59.3b more than its cash and near-term receivables, combined.

Of course, Ambuja Cements has a titanic market capitalization of ₹1.37t, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Ambuja Cements boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Ambuja Cements

It is just as well that Ambuja Cements's load is not too heavy, because its EBIT was down 27% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Ambuja Cements'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 Ambuja Cements 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, Ambuja Cements burned a lot of cash. 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

We could understand if investors are concerned about Ambuja Cements's liabilities, but we can be reassured by the fact it has has net cash of ₹77.9b. So although we see some areas for improvement, we're not too worried about Ambuja Cements's balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Ambuja Cements (1 shouldn't be ignored) you should be aware of.

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.