Warren Buffett famously declared, ‘Volatility is far from synonymous with risk.’ So it might be obvious that you necessary to consider debt, when you consider about how risky any given stock is, becaapply too much debt can sink a company. As with many other companies Cool Caps Industries Limited (NSE:COOLCAPS) creates apply of debt. But the real question is whether this debt is building the company risky.
Why Does Debt Bring Risk?
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. If things obtain really bad, the lfinishers can take control of the business. 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 apply 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 toobtainher.
What Is Cool Caps Industries’s Debt?
As you can see below, at the finish of September 2025, Cool Caps Industries had ₹1.54b of debt, up from ₹1.37b a year ago. Click the image for more detail. And it doesn’t have much cash, so its net debt is about the same.
How Strong Is Cool Caps Industries’ Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Cool Caps Industries had liabilities of ₹1.42b due within 12 months and liabilities of ₹867.1m due beyond that. Offsetting these obligations, it had cash of ₹13.1m as well as receivables valued at ₹909.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹1.36b.
While this might seem like a lot, it is not so bad since Cool Caps Industries has a market capitalization of ₹6.05b, and so it could probably strengthen its balance sheet by raising capital if it necessaryed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
See our latest analysis for Cool Caps Industries
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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
While we wouldn’t worry about Cool Caps Industries’s net debt to EBITDA ratio of 4.0, we consider its super-low interest cover of 2.3 times is a sign of high leverage. It seems clear that the cost of borrowing money is negatively impacting returns for shareholders, of late. Looking on the bright side, Cool Caps Industries boosted its EBIT by a silky 81% in the last year. Like a mother’s loving embrace of a newborn that sort of growth builds resilience, putting the company in a stronger position to manage its debt. There’s no doubt that we learn most about debt from the balance sheet. But you can’t view debt in total isolation; since Cool Caps Industries will necessary earnings to service that debt. So if you’re keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trfinish.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, Cool Caps Industries saw substantial negative free cash flow, in total. 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
Neither Cool Caps Industries’s ability to convert EBIT to free cash flow nor its interest cover gave us confidence in its ability to take on more debt. But its EBIT growth rate notifys a very different story, and suggests some resilience. We consider that Cool Caps Industries’s debt does create it a bit risky, after considering the aforementioned data points toobtainher. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. 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 instance, we’ve identified 2 warning signs for Cool Caps Industries (1 shouldn’t be ignored) you should be aware of.
At the finish of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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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 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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