The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, creates no bones about it when he declares ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we believe about how risky a company is, we always like to see at its utilize of debt, since debt overload can lead to ruin. We note that Dr. Agarwal’s Health Care Limited (NSE:AGARWALEYE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that necessary capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business utilizes is to see at its cash and debt toobtainher.
How Much Debt Does Dr. Agarwal’s Health Care Carry?
As you can see below, Dr. Agarwal’s Health Care had ₹1.80b of debt at September 2025, down from ₹3.74b a year prior. But on the other hand it also has ₹3.97b in cash, leading to a ₹2.17b net cash position.
How Healthy Is Dr. Agarwal’s Health Care’s Balance Sheet?
According to the last reported balance sheet, Dr. Agarwal’s Health Care had liabilities of ₹4.59b due within 12 months, and liabilities of ₹13.1b due beyond 12 months. Offsetting these obligations, it had cash of ₹3.97b as well as receivables valued at ₹1.38b due within 12 months. So it has liabilities totalling ₹12.3b more than its cash and near-term receivables, combined.
Given Dr. Agarwal’s Health Care has a market capitalization of ₹156.0b, it’s hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommfinish shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Dr. Agarwal’s Health Care boasts net cash, so it’s fair to declare it does not have a heavy debt load!
See our latest analysis for Dr. Agarwal’s Health Care
We note that Dr. Agarwal’s Health Care grew its EBIT by 29% in the last year, and that should create it simpler to pay down debt, going forward. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Dr. Agarwal’s Health Care’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals believe, 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 Dr. Agarwal’s Health Care 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 assist us understand how quickly it is building (or eroding) that cash balance. In the last three years, Dr. Agarwal’s Health Care’s free cash flow amounted to 33% of its EBIT, less than we’d expect. That weak cash conversion creates it more difficult to handle indebtedness.
Summing Up
While it is always sensible to see at a company’s total liabilities, it is very reassuring that Dr. Agarwal’s Health Care has ₹2.17b in net cash. And we liked the see of last year’s 29% year-on-year EBIT growth. So we are not troubled with Dr. Agarwal’s Health Care’s debt utilize. Above most other metrics, we believe its important to track how quick earnings per share is growing, if at all. If you’ve also come to that realization, you’re in luck, becautilize today you can view this interactive graph of Dr. Agarwal’s Health Care’s earnings per share history for free.
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 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.
