These 4 Measures Indicate That Rallis India (NSE:RALLIS) Is Using Debt Safely

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.' 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 Rallis India Limited (NSE:RALLIS) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Rallis India's Debt?

The image below, which you can click on for greater detail, shows that Rallis India had debt of ₹631.0m at the end of March 2025, a reduction from ₹1.34b over a year. But it also has ₹4.37b in cash to offset that, meaning it has ₹3.74b net cash.

How Healthy Is Rallis India's Balance Sheet?

The latest balance sheet data shows that Rallis India had liabilities of ₹9.69b due within a year, and liabilities of ₹1.02b falling due after that. Offsetting these obligations, it had cash of ₹4.37b as well as receivables valued at ₹5.77b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹563.1m.

Having regard to Rallis India's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹65.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Rallis India also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Rallis India

Also positive, Rallis India grew its EBIT by 23% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Rallis India's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Rallis India 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, Rallis India generated free cash flow amounting to a very robust 93% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Rallis India has ₹3.74b in net cash. And it impressed us with free cash flow of ₹2.2b, being 93% of its EBIT. So is Rallis India's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Rallis India you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.