Warren Buffett famously stated, ‘Volatility is far from synonymous with risk.’ So it might be obvious that you required to consider debt, when you consider about how risky any given stock is, becautilize too much debt can sink a company. We note that PNC Infratech Limited (NSE:PNCINFRA) does have debt on its balance sheet. But the real question is whether this debt is building the company risky.
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. While that is not too common, we often do see indebted companies permanently diluting shareholders becautilize lfinishers force them to raise capital at a distressed price. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. When we consider about a company’s utilize of debt, we first view at cash and debt toobtainher.
How Much Debt Does PNC Infratech Carry?
You can click the graphic below for the historical numbers, but it reveals that PNC Infratech had ₹50.5b of debt in September 2025, down from ₹87.8b, one year before. However, becautilize it has a cash reserve of ₹29.3b, its net debt is less, at about ₹21.2b.
How Healthy Is PNC Infratech’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that PNC Infratech had liabilities of ₹18.7b due within 12 months and liabilities of ₹52.9b due beyond that. Offsetting this, it had ₹29.3b in cash and ₹15.0b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹27.2b.
While this might seem like a lot, it is not so bad since PNC Infratech has a market capitalization of ₹56.6b, and so it could probably strengthen its balance sheet by raising capital if it requireded to. However, it is still worthwhile taking a close view at its ability to pay off debt.
Check out our latest analysis for PNC Infratech
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.
Even though PNC Infratech’s debt is only 1.5, its interest cover is really very low at 1.8. This does have us wondering if the company pays high interest becautilize it is considered risky. In any case, it’s safe to declare the company has meaningful debt. Shareholders should be aware that PNC Infratech’s EBIT was down 48% last year. If that earnings trfinish continues then paying off its debt will be about as straightforward as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine PNC Infratech’s ability to maintain a healthy balance sheet going forward. 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 requireds cold hard cash. So it’s worth checking how much of that EBIT is backed by free cash flow. Over the most recent three years, PNC Infratech recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.
Our View
To be frank both PNC Infratech’s interest cover and its track record of (not) growing its EBIT create us rather uncomfortable with its debt levels. But at least it’s pretty decent at converting EBIT to free cash flow; that’s encouraging. Once we consider all the factors above, toobtainher, it seems to us that PNC Infratech’s debt is building it a bit risky. That’s not necessarily a bad thing, but we’d generally feel more comfortable with less leverage. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. We’ve identified 2 warning signs with PNC Infratech (at least 1 which shouldn’t be ignored) , and understanding them should be part of your investment process.
Of course, if you’re the type of investor who prefers acquireing stocks without the burden of debt, then don’t hesitate to discover our exclusive list of net cash growth stocks, today.
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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 intfinished to be financial advice. It does not constitute a recommfinishation 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 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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