Legfinishary fund manager Li Lu (who Charlie Munger backed) once stated, ‘The largegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it might be obvious that you required to consider debt, when you believe about how risky any given stock is, becaapply too much debt can sink a company. As with many other companies Amber Enterprises India Limited (NSE:AMBER) builds apply of debt. But should shareholders be worried about its apply of debt?
What Risk Does Debt Bring?
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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders becaapply lfinishers force them to raise capital at a distressed price. Of course, plenty of companies apply debt to fund growth, without any negative consequences. When we believe about a company’s apply of debt, we first see at cash and debt toobtainher.
What Is Amber Enterprises India’s Debt?
As you can see below, at the finish of September 2025, Amber Enterprises India had ₹25.6b of debt, up from ₹19.4b a year ago. Click the image for more detail. However, it also had ₹9.70b in cash, and so its net debt is ₹15.9b.
How Healthy Is Amber Enterprises India’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Amber Enterprises India had liabilities of ₹35.9b due within 12 months and liabilities of ₹17.9b due beyond that. Offsetting this, it had ₹9.70b in cash and ₹11.2b in receivables that were due within 12 months. So its liabilities total ₹32.9b more than the combination of its cash and short-term receivables.
Given Amber Enterprises India has a market capitalization of ₹222.6b, it’s hard to believe these liabilities pose much threat. However, we do believe it is worth keeping an eye on its balance sheet strength, as it may alter over time.
View our latest analysis for Amber Enterprises 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.
Amber Enterprises India has net debt worth 2.1 times EBITDA, which isn’t too much, but its interest cover sees a bit on the low side, with EBIT at only 3.3 times the interest expense. While these numbers do not alarm us, it’s worth noting that the cost of the company’s debt is having a real impact. It is well worth noting that Amber Enterprises India’s EBIT shot up like bamboo after rain, gaining 40% in the last twelve months. That’ll build it simpler to manage its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Amber Enterprises India can strengthen its balance sheet over time. So if you want to see what the professionals believe, you might find this free report on analyst profit forecasts to be interesting.
Finally, while the tax-man may adore accounting profits, lfinishers only accept cold hard cash. So the logical step is to see at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Amber Enterprises India 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
Based on what we’ve seen Amber Enterprises India is not finding it straightforward, given its conversion of EBIT to free cash flow, but the other factors we considered give us caapply to be optimistic. In particular, we are dazzled with its EBIT growth rate. When we consider all the factors mentioned above, we do feel a bit cautious about Amber Enterprises India’s apply of debt. While we appreciate debt can enhance returns on equity, we’d suggest that shareholders keep close watch on its debt levels, lest they increase. There’s no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet – far from it. These risks can be hard to spot. Every company has them, and we’ve spotted 1 warning sign for Amber Enterprises India 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.
New: Manage All Your Stock Portfolios in One Place
We’ve created the ultimate portfolio companion for stock investors, and it’s free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Leave a Reply