Does Fertilisers and Chemicals Travancore (NSE:FACT) Have A Healthy Balance Sheet?

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 The Fertilisers and Chemicals Travancore Limited (NSE:FACT) does use debt in its business. But is this debt a concern to shareholders?

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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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Fertilisers and Chemicals Travancore's Debt?

The chart below, which you can click on for greater detail, shows that Fertilisers and Chemicals Travancore had ₹17.7b in debt in March 2025; about the same as the year before. But on the other hand it also has ₹27.8b in cash, leading to a ₹10.1b net cash position.

How Healthy Is Fertilisers and Chemicals Travancore's Balance Sheet?

According to the last reported balance sheet, Fertilisers and Chemicals Travancore had liabilities of ₹44.3b due within 12 months, and liabilities of ₹1.85b due beyond 12 months. Offsetting this, it had ₹27.8b in cash and ₹2.83b in receivables that were due within 12 months. So it has liabilities totalling ₹15.5b more than its cash and near-term receivables, combined.

Of course, Fertilisers and Chemicals Travancore has a market capitalization of ₹602.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Fertilisers and Chemicals Travancore boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Fertilisers and Chemicals Travancore

Importantly, Fertilisers and Chemicals Travancore's EBIT fell a jaw-dropping 82% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. There's no doubt that we learn most about debt from the balance sheet. But it is Fertilisers and Chemicals Travancore's earnings that will influence how the balance sheet holds up in the future. 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. Fertilisers and Chemicals Travancore 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 most recent three years, Fertilisers and Chemicals Travancore recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Fertilisers and Chemicals Travancore's liabilities, but we can be reassured by the fact it has has net cash of ₹10.1b. So although we see some areas for improvement, we're not too worried about Fertilisers and Chemicals Travancore's balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Fertilisers and Chemicals Travancore (1 is potentially serious!) 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.