Does Ratnamani Metals & Tubes (NSE:RATNAMANI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Ratnamani Metals & Tubes Limited (NSE:RATNAMANI) does carry debt. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Ratnamani Metals & Tubes's Net Debt?

The chart below, which you can click on for greater detail, shows that Ratnamani Metals & Tubes had ₹1.41b in debt in March 2025; about the same as the year before. But on the other hand it also has ₹4.05b in cash, leading to a ₹2.64b net cash position.

How Healthy Is Ratnamani Metals & Tubes' Balance Sheet?

We can see from the most recent balance sheet that Ratnamani Metals & Tubes had liabilities of ₹9.97b falling due within a year, and liabilities of ₹2.44b due beyond that. On the other hand, it had cash of ₹4.05b and ₹12.7b worth of receivables due within a year. So it can boast ₹4.29b more liquid assets than total liabilities.

This surplus suggests that Ratnamani Metals & Tubes has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Ratnamani Metals & Tubes has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Ratnamani Metals & Tubes

But the bad news is that Ratnamani Metals & Tubes has seen its EBIT plunge 10% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Ratnamani Metals & Tubes'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. Ratnamani Metals & Tubes 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. Looking at the most recent three years, Ratnamani Metals & Tubes recorded free cash flow of 31% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Ratnamani Metals & Tubes has ₹2.64b in net cash and a decent-looking balance sheet. So we don't have any problem with Ratnamani Metals & Tubes's use of debt. 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. For instance, we've identified 1 warning sign for Ratnamani Metals & Tubes that you should be aware of.

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.