Elin Electronics (NSE:ELIN) Seems To Use Debt Quite Sensibly

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Elin Electronics Limited (NSE:ELIN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Elin Electronics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Elin Electronics had ₹240.6m of debt, an increase on ₹119.9m, over one year. However, it does have ₹982.8m in cash offsetting this, leading to net cash of ₹742.2m.

How Healthy Is Elin Electronics' Balance Sheet?

We can see from the most recent balance sheet that Elin Electronics had liabilities of ₹1.80b falling due within a year, and liabilities of ₹139.5m due beyond that. Offsetting this, it had ₹982.8m in cash and ₹2.30b in receivables that were due within 12 months. So it actually has ₹1.35b more liquid assets than total liabilities.

This short term liquidity is a sign that Elin Electronics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Elin Electronics boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Elin Electronics

On top of that, Elin Electronics grew its EBIT by 50% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Elin Electronics will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Elin Electronics 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. Considering the last three years, Elin Electronics actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Elin Electronics has net cash of ₹742.2m, as well as more liquid assets than liabilities. And we liked the look of last year's 50% year-on-year EBIT growth. So we don't think Elin Electronics's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Elin Electronics (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.