Does Asian Paints (NSE:ASIANPAINT) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Asian Paints Limited (NSE:ASIANPAINT) makes use of debt. But the more important question is: how much risk is that debt creating?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Asian Paints Carry?

As you can see below, Asian Paints had ₹8.64b of debt at March 2025, down from ₹11.1b a year prior. However, it does have ₹46.9b in cash offsetting this, leading to net cash of ₹38.3b.

A Look At Asian Paints' Liabilities

The latest balance sheet data shows that Asian Paints had liabilities of ₹81.4b due within a year, and liabilities of ₹21.7b falling due after that. Offsetting this, it had ₹46.9b in cash and ₹47.8b in receivables that were due within 12 months. So its liabilities total ₹8.41b more than the combination of its cash and short-term receivables.

Having regard to Asian Paints' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹2.34t company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Asian Paints also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Asian Paints

In fact Asian Paints's saving grace is its low debt levels, because its EBIT has tanked 26% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Asian Paints 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. Asian Paints may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Asian Paints produced sturdy free cash flow equating to 55% 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

While it is always sensible to look at a company's total liabilities, it is very reassuring that Asian Paints has ₹38.3b in net cash. So we are not troubled with Asian Paints's debt use. 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. To that end, you should be aware of the 1 warning sign we've spotted with Asian Paints .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.