Coromandel International (NSE:COROMANDEL) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Coromandel International Limited (NSE:COROMANDEL) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Coromandel International Carry?

As you can see below, at the end of March 2025, Coromandel International had ₹2.32b of debt, up from ₹517.9m a year ago. Click the image for more detail. But on the other hand it also has ₹43.8b in cash, leading to a ₹41.4b net cash position.

How Strong Is Coromandel International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Coromandel International had liabilities of ₹69.9b due within 12 months and liabilities of ₹7.14b due beyond that. Offsetting these obligations, it had cash of ₹43.8b as well as receivables valued at ₹29.4b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹3.84b.

This state of affairs indicates that Coromandel International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹658.6b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Coromandel International also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Coromandel International

The good news is that Coromandel International has increased its EBIT by 9.4% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Coromandel International'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 Coromandel International 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. In the last three years, Coromandel International's free cash flow amounted to 33% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Coromandel International has ₹41.4b in net cash. And it also grew its EBIT by 9.4% over the last year. So we don't have any problem with Coromandel International's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Coromandel International that you should be aware of before investing here.

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.