Neuland Laboratories (NSE:NEULANDLAB) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that Neuland Laboratories Limited (NSE:NEULANDLAB) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Neuland Laboratories Carry?

As you can see below, at the end of March 2025, Neuland Laboratories had ₹1.57b of debt, up from ₹953.9m a year ago. Click the image for more detail. But on the other hand it also has ₹2.40b in cash, leading to a ₹824.8m net cash position.

How Strong Is Neuland Laboratories' Balance Sheet?

We can see from the most recent balance sheet that Neuland Laboratories had liabilities of ₹4.66b falling due within a year, and liabilities of ₹1.89b due beyond that. Offsetting this, it had ₹2.40b in cash and ₹3.24b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹912.7m.

This state of affairs indicates that Neuland Laboratories' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹191.8b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Neuland Laboratories also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Neuland Laboratories

It is just as well that Neuland Laboratories's load is not too heavy, because its EBIT was down 60% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Neuland Laboratories'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. Neuland Laboratories 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. In the last three years, Neuland Laboratories's free cash flow amounted to 44% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Neuland Laboratories's liabilities, but we can be reassured by the fact it has has net cash of ₹824.8m. So we are not troubled with Neuland Laboratories's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Neuland Laboratories that you should be aware of.

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.