Would Shalimar Paints (NSE:SHALPAINTS) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Shalimar Paints Limited (NSE:SHALPAINTS) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. 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. 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 Shalimar Paints's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Shalimar Paints had ₹1.53b of debt, an increase on ₹1.03b, over one year. However, because it has a cash reserve of ₹567.6m, its net debt is less, at about ₹957.9m.

How Strong Is Shalimar Paints' Balance Sheet?

We can see from the most recent balance sheet that Shalimar Paints had liabilities of ₹3.55b falling due within a year, and liabilities of ₹323.9m due beyond that. Offsetting this, it had ₹567.6m in cash and ₹1.48b in receivables that were due within 12 months. So it has liabilities totalling ₹1.83b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Shalimar Paints has a market capitalization of ₹7.08b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Shalimar Paints's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Shalimar Paints

Over 12 months, Shalimar Paints reported revenue of ₹6.0b, which is a gain of 12%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Shalimar Paints produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₹725m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₹909m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Shalimar Paints (2 are concerning!) that you should be aware of before investing here.

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.