Shivalik Bimetal Controls (NSE:SBCL) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 Shivalik Bimetal Controls Limited (NSE:SBCL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Shivalik Bimetal Controls's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Shivalik Bimetal Controls had ₹326.0m of debt in March 2025, down from ₹422.7m, one year before. But on the other hand it also has ₹790.4m in cash, leading to a ₹464.4m net cash position.

How Strong Is Shivalik Bimetal Controls' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shivalik Bimetal Controls had liabilities of ₹821.3m due within 12 months and liabilities of ₹201.3m due beyond that. Offsetting this, it had ₹790.4m in cash and ₹1.11b in receivables that were due within 12 months. So it can boast ₹882.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Shivalik Bimetal Controls could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Shivalik Bimetal Controls has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Shivalik Bimetal Controls

On the other hand, Shivalik Bimetal Controls's EBIT dived 13%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Shivalik Bimetal Controls 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Shivalik Bimetal Controls 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. Looking at the most recent three years, Shivalik Bimetal Controls recorded free cash flow of 49% 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 Shivalik Bimetal Controls has ₹464.4m in net cash and a decent-looking balance sheet. So we are not troubled with Shivalik Bimetal Controls's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Shivalik Bimetal Controls , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.