Here's Why PTC Industries (NSE:PTCIL) Can Manage Its Debt Responsibly

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. We note that PTC Industries Limited (NSE:PTCIL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is PTC Industries's Net Debt?

The image below, which you can click on for greater detail, shows that PTC Industries had debt of ₹608.3m at the end of March 2025, a reduction from ₹1.82b over a year. However, its balance sheet shows it holds ₹3.82b in cash, so it actually has ₹3.21b net cash.

How Strong Is PTC Industries' Balance Sheet?

According to the last reported balance sheet, PTC Industries had liabilities of ₹1.22b due within 12 months, and liabilities of ₹752.1m due beyond 12 months. Offsetting these obligations, it had cash of ₹3.82b as well as receivables valued at ₹1.44b due within 12 months. So it actually has ₹3.29b more liquid assets than total liabilities.

Having regard to PTC Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹227.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that PTC Industries has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for PTC Industries

In addition to that, we're happy to report that PTC Industries has boosted its EBIT by 54%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if PTC Industries can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While PTC Industries 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. During the last three years, PTC Industries burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that PTC Industries has net cash of ₹3.21b, as well as more liquid assets than liabilities. And we liked the look of last year's 54% year-on-year EBIT growth. So we are not troubled with PTC Industries's debt use. 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. Be aware that PTC Industries is showing 1 warning sign in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.