Is Ellenbarrie Industrial Gases (NSE:ELLEN) A Risky Investment?

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.' 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 Ellenbarrie Industrial Gases Limited (NSE:ELLEN) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Ellenbarrie Industrial Gases Carry?

As you can see below, Ellenbarrie Industrial Gases had ₹1.14b of debt at September 2025, down from ₹2.45b a year prior. But it also has ₹1.73b in cash to offset that, meaning it has ₹590.8m net cash.

How Strong Is Ellenbarrie Industrial Gases' Balance Sheet?

We can see from the most recent balance sheet that Ellenbarrie Industrial Gases had liabilities of ₹1.14b falling due within a year, and liabilities of ₹1.10b due beyond that. On the other hand, it had cash of ₹1.73b and ₹988.9m worth of receivables due within a year. So it actually has ₹479.1m more liquid assets than total liabilities.

Having regard to Ellenbarrie Industrial Gases' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹57.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Ellenbarrie Industrial Gases has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Ellenbarrie Industrial Gases

In addition to that, we're happy to report that Ellenbarrie Industrial Gases has boosted its EBIT by 34%, thus reducing the spectre of future debt repayments. 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 Ellenbarrie Industrial Gases'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 company can only pay off debt with cold hard cash, not accounting profits. Ellenbarrie Industrial Gases 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. Over the last three years, Ellenbarrie Industrial Gases 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 Ellenbarrie Industrial Gases has ₹590.8m in net cash and a decent-looking balance sheet. And we liked the look of last year's 34% year-on-year EBIT growth. So we don't have any problem with Ellenbarrie Industrial Gases's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Ellenbarrie Industrial Gases, you may well want to click here to check an interactive graph of its earnings per share history.

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.