We Think Shivalik Bimetal Controls (NSE:SBCL) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Shivalik Bimetal Controls Limited (NSE:SBCL) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Shivalik Bimetal Controls

What Is Shivalik Bimetal Controls's Net Debt?

As you can see below, Shivalik Bimetal Controls had ₹387.0m of debt at September 2024, down from ₹427.3m a year prior. But it also has ₹548.8m in cash to offset that, meaning it has ₹161.8m net cash.

A Look At Shivalik Bimetal Controls' Liabilities

We can see from the most recent balance sheet that Shivalik Bimetal Controls had liabilities of ₹812.4m falling due within a year, and liabilities of ₹165.1m due beyond that. Offsetting this, it had ₹548.8m in cash and ₹1.05b in receivables that were due within 12 months. So it can boast ₹621.7m more liquid assets than total liabilities.

This surplus suggests that Shivalik Bimetal Controls has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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.

Shivalik Bimetal Controls's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shivalik Bimetal Controls'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.

Finally, while the tax-man may adore accounting profits, lenders only accept 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. In the last three years, Shivalik Bimetal Controls's free cash flow amounted to 38% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Shivalik Bimetal Controls has ₹161.8m in net cash and a decent-looking balance sheet. So we don't have any problem with Shivalik Bimetal Controls's use of debt. 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. Be aware that Shivalik Bimetal Controls is showing 1 warning sign in our investment analysis , you should know about...

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.