These 4 Measures Indicate That Orient Cement (NSE:ORIENTCEM) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Orient Cement Limited (NSE:ORIENTCEM) 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Orient Cement's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Orient Cement had ₹325.2m of debt in March 2025, down from ₹1.30b, one year before. But it also has ₹779.2m in cash to offset that, meaning it has ₹454.0m net cash.

How Healthy Is Orient Cement's Balance Sheet?

The latest balance sheet data shows that Orient Cement had liabilities of ₹5.15b due within a year, and liabilities of ₹4.80b falling due after that. On the other hand, it had cash of ₹779.2m and ₹2.66b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹6.51b.

Of course, Orient Cement has a market capitalization of ₹64.7b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Orient Cement boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Orient Cement

It is just as well that Orient Cement's load is not too heavy, because its EBIT was down 51% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Orient Cement'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. Orient Cement 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, Orient Cement recorded free cash flow worth 70% 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

While Orient Cement does have more liabilities than liquid assets, it also has net cash of ₹454.0m. The cherry on top was that in converted 70% of that EBIT to free cash flow, bringing in ₹1.5b. So we are not troubled with Orient Cement'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. We've identified 1 warning sign with Orient Cement , and understanding them should be part of your investment process.

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.

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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.