Garware Hi-Tech Films (NSE:GRWRHITECH) Could Easily Take On More Debt

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.' 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 note that Garware Hi-Tech Films Limited (NSE:GRWRHITECH) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Garware Hi-Tech Films's Net Debt?

The image below, which you can click on for greater detail, shows that Garware Hi-Tech Films had debt of ₹152.1m at the end of March 2025, a reduction from ₹199.1m over a year. However, it does have ₹6.40b in cash offsetting this, leading to net cash of ₹6.25b.

How Healthy Is Garware Hi-Tech Films' Balance Sheet?

According to the last reported balance sheet, Garware Hi-Tech Films had liabilities of ₹2.47b due within 12 months, and liabilities of ₹631.1m due beyond 12 months. Offsetting this, it had ₹6.40b in cash and ₹458.9m in receivables that were due within 12 months. So it can boast ₹3.76b more liquid assets than total liabilities.

This surplus suggests that Garware Hi-Tech Films has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Garware Hi-Tech Films boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Garware Hi-Tech Films

On top of that, Garware Hi-Tech Films grew its EBIT by 32% over the last twelve months, and that growth will make it easier to handle its debt. 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 Garware Hi-Tech Films 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. Garware Hi-Tech Films 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, Garware Hi-Tech Films produced sturdy free cash flow equating to 73% 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 investigate a company's debt, in this case Garware Hi-Tech Films has ₹6.25b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 32% over the last year. So is Garware Hi-Tech Films's debt a risk? It doesn't seem so to us. 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 example, we've discovered 1 warning sign for Garware Hi-Tech Films that you should be aware of before investing here.

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.