We Think Shree Cement (NSE:SHREECEM) Can Stay On Top Of Its 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Shree Cement Limited (NSE:SHREECEM) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Shree Cement's Net Debt?

As you can see below, at the end of September 2025, Shree Cement had ₹18.6b of debt, up from ₹14.5b a year ago. Click the image for more detail. However, it does have ₹75.8b in cash offsetting this, leading to net cash of ₹57.2b.

A Look At Shree Cement's Liabilities

Zooming in on the latest balance sheet data, we can see that Shree Cement had liabilities of ₹65.5b due within 12 months and liabilities of ₹11.6b due beyond that. Offsetting these obligations, it had cash of ₹75.8b as well as receivables valued at ₹21.1b due within 12 months. So it actually has ₹19.8b more liquid assets than total liabilities.

This surplus suggests that Shree Cement has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Shree Cement boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Shree Cement

Fortunately, Shree Cement grew its EBIT by 7.7% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Shree Cement can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Shree Cement 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. Over the last three years, Shree Cement reported free cash flow worth 19% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Shree Cement has net cash of ₹57.2b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 7.7% in the last twelve months. So we don't have any problem with Shree Cement'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. Case in point: We've spotted 1 warning sign for Shree Cement you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.