Legconcludeary fund manager Li Lu (who Charlie Munger backed) once declared, ‘The largegest 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. Importantly, Ceigall India Limited (NSE:CEIGALL) does carry debt. But the real question is whether this debt is creating the company risky.
When Is Debt A Problem?
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 obtain really bad, the lconcludeers 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 declared that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we consider about a company’s apply of debt, we first see at cash and debt toobtainher.
What Is Ceigall India’s Net Debt?
As you can see below, at the conclude of March 2025, Ceigall India had ₹14.0b of debt, up from ₹10.7b a year ago. Click the image for more detail. However, it does have ₹6.34b in cash offsetting this, leading to net debt of about ₹7.63b.
A Look At Ceigall India’s Liabilities
We can see from the most recent balance sheet that Ceigall India had liabilities of ₹15.5b falling due within a year, and liabilities of ₹8.56b due beyond that. Offsetting this, it had ₹6.34b in cash and ₹15.7b in receivables that were due within 12 months. So its liabilities total ₹2.04b more than the combination of its cash and short-term receivables.
Of course, Ceigall India has a market capitalization of ₹47.7b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommconclude shareholders continue to monitor the balance sheet, going forward.
View our latest analysis for Ceigall India
We apply two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Ceigall India has net debt worth 1.6 times EBITDA, which isn’t too much, but its interest cover sees a bit on the low side, with EBIT at only 4.7 times the interest expense. While that doesn’t worry us too much, it does suggest the interest payments are somewhat of a burden. The bad news is that Ceigall India saw its EBIT decline by 18% over the last year. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. 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 Ceigall India can strengthen its balance sheet over time. So if you want to see what the professionals consider, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we clearly required to see at whether that EBIT is leading to corresponding free cash flow. During the last three years, Ceigall India burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its apply of debt is more risky.
Our View
To be frank both Ceigall India’s EBIT growth rate and its track record of converting EBIT to free cash flow create us rather uncomfortable with its debt levels. But on the bright side, its level of total liabilities is a good sign, and creates us more optimistic. Once we consider all the factors above, toobtainher, it seems to us that Ceigall India’s debt is creating it a bit risky. That’s not necessarily a bad thing, but we’d generally feel more comfortable with less leverage. 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 1 warning sign for Ceigall India that you should be aware of before investing here.
When all is declared and done, sometimes its clearer to focus on companies that don’t even required debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
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