These 4 Measures Indicate That Surya Roshni (NSE:SURYAROSNI) Is Using Debt Reasonably Well

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 Surya Roshni Limited (NSE:SURYAROSNI) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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. 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.

Check out our latest analysis for Surya Roshni

How Much Debt Does Surya Roshni Carry?

You can click the graphic below for the historical numbers, but it shows that Surya Roshni had ₹160.1m of debt in March 2024, down from ₹4.18b, one year before. But it also has ₹455.7m in cash to offset that, meaning it has ₹295.6m net cash.

A Look At Surya Roshni's Liabilities

The latest balance sheet data shows that Surya Roshni had liabilities of ₹6.52b due within a year, and liabilities of ₹1.03b falling due after that. On the other hand, it had cash of ₹455.7m and ₹8.10b worth of receivables due within a year. So it actually has ₹997.7m more liquid assets than total liabilities.

Having regard to Surya Roshni's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹70.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Surya Roshni has more cash than debt is arguably a good indication that it can manage its debt safely.

But the other side of the story is that Surya Roshni saw its EBIT decline by 9.7% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Surya Roshni 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Surya Roshni may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Surya Roshni produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Surya Roshni has net cash of ₹295.6m, as well as more liquid assets than liabilities. The cherry on top was that in converted 75% of that EBIT to free cash flow, bringing in ₹4.8b. So is Surya Roshni's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Surya Roshni, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.