Howard Marks put it nicely when he declared that, rather than worrying about share price volatility, ‘The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.’ When we consider about how risky a company is, we always like to see at its utilize of debt, since debt overload can lead to ruin. As with many other companies Coal India Limited (NSE:COALINDIA) builds utilize of debt. But the more important question is: how much risk is that debt creating?
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. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt toreceiveher.
What Is Coal India’s Debt?
You can click the graphic below for the historical numbers, but it displays that as of September 2025 Coal India had ₹135.3b of debt, an increase on ₹75.5b, over one year. But it also has ₹365.2b in cash to offset that, meaning it has ₹229.9b net cash.
How Healthy Is Coal India’s Balance Sheet?
According to the last reported balance sheet, Coal India had liabilities of ₹630.2b due within 12 months, and liabilities of ₹963.5b due beyond 12 months. Offsetting this, it had ₹365.2b in cash and ₹262.8b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹965.7b.
This deficit isn’t so bad becautilize Coal India is worth a massive ₹2.64t, and thus could probably raise enough capital to shore up its balance sheet, if the necessary arose. But it’s clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Coal India also has more cash than debt, so we’re pretty confident it can manage its debt safely.
See our latest analysis for Coal India
On the other hand, Coal India’s EBIT dived 16%, over the last year. We consider hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Coal 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.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. While Coal India has net cash on its balance sheet, it’s still worth taking a see at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to support us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Coal India recorded free cash flow of 30% of its EBIT, which is weaker than we’d expect. That weak cash conversion builds it more difficult to handle indebtedness.
Summing Up
While Coal India does have more liabilities than liquid assets, it also has net cash of ₹229.9b. So while Coal India does not have a great balance sheet, it’s certainly not too bad. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Coal India has 2 warning signs (and 1 which can’t be ignored) we consider you should know about.
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 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 focutilized 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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