Supreme Industries (NSE:SUPREMEIND) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, '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. As with many other companies The Supreme Industries Limited (NSE:SUPREMEIND) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

How Much Debt Does Supreme Industries Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Supreme Industries had ₹758.0m of debt, an increase on ₹550.6m, over one year. However, it does have ₹9.44b in cash offsetting this, leading to net cash of ₹8.68b.

A Look At Supreme Industries' Liabilities

Zooming in on the latest balance sheet data, we can see that Supreme Industries had liabilities of ₹13.1b due within 12 months and liabilities of ₹1.93b due beyond that. Offsetting these obligations, it had cash of ₹9.44b as well as receivables valued at ₹6.39b due within 12 months. So it actually has ₹752.4m more liquid assets than total liabilities.

Having regard to Supreme Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹545.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Supreme Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Supreme Industries

The modesty of its debt load may become crucial for Supreme Industries if management cannot prevent a repeat of the 23% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Supreme Industries's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Supreme Industries 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, Supreme Industries recorded free cash flow of 37% of its EBIT, which is weaker 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 Supreme Industries has ₹8.68b in net cash and a decent-looking balance sheet. So we are not troubled with Supreme Industries'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. For example - Supreme Industries has 1 warning sign we think 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.