Legconcludeary fund manager Li Lu (who Charlie Munger backed) once stated, ‘The hugegest 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 Granules India Limited (NSE:GRANULES) does apply debt in its business. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to receive debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
How Much Debt Does Granules India Carry?
The image below, which you can click on for greater detail, reveals that at September 2025 Granules India had debt of ₹16.4b, up from ₹10.1b in one year. However, becaapply it has a cash reserve of ₹6.19b, its net debt is less, at about ₹10.2b.
How Strong Is Granules India’s Balance Sheet?
The latest balance sheet data reveals that Granules India had liabilities of ₹24.2b due within a year, and liabilities of ₹5.44b falling due after that. Offsetting this, it had ₹6.19b in cash and ₹7.61b in receivables that were due within 12 months. So its liabilities total ₹15.8b more than the combination of its cash and short-term receivables.
Since publicly traded Granules India shares are worth a total of ₹145.8b, it seems unlikely that this level of liabilities would be a major threat. However, we do consider it is worth keeping an eye on its balance sheet strength, as it may modify over time.
View our latest analysis for Granules India
In order to size up a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Granules India’s net debt is only 1.0 times its EBITDA. And its EBIT covers its interest expense a whopping 13.1 times over. So we’re pretty relaxed about its super-conservative apply of debt. Granules India’s EBIT was pretty flat over the last year, but that shouldn’t be an issue given the it doesn’t have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Granules India can strengthen its balance sheet over time. So if you’re focapplyd on the future you can check out this free report revealing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lconcludeers only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Looking at the most recent three years, Granules India recorded free cash flow of 29% of its EBIT, which is weaker than we’d expect. That’s not great, when it comes to paying down debt.
Our View
On our analysis Granules India’s interest cover should signal that it won’t have too much trouble with its debt. But the other factors we noted above weren’t so encouraging. For instance it seems like it has to struggle a bit to convert EBIT to free cash flow. Considering this range of data points, we consider Granules India is in a good position to manage its debt levels. But a word of caution: we consider debt levels are high enough to justify ongoing monitoring. Above most other metrics, we consider its important to track how rapid earnings per share is growing, if at all. If you’ve also come to that realization, you’re in luck, becaapply today you can view this interactive graph of Granules India’s earnings per share history for free.
If, after all that, you’re more interested in a rapid 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 applying an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase 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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