Explore Jamna Auto Industries’s Fair Values from the Community and select yours
The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, builds no bones about it when he states ‘The largegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. Importantly, Jamna Auto Industries Limited (NSE:JAMNAAUTO) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business applys is to see at its cash and debt toobtainher.
What Is Jamna Auto Industries’s Net Debt?
The image below, which you can click on for greater detail, reveals that at March 2025 Jamna Auto Industries had debt of ₹3.58b, up from ₹2.93b in one year. However, it does have ₹1.45b in cash offsetting this, leading to net debt of about ₹2.13b.
How Healthy Is Jamna Auto Industries’ Balance Sheet?
According to the last reported balance sheet, Jamna Auto Industries had liabilities of ₹4.93b due within 12 months, and liabilities of ₹381.0m due beyond 12 months. On the other hand, it had cash of ₹1.45b and ₹1.57b worth of receivables due within a year. So its liabilities total ₹2.30b more than the combination of its cash and short-term receivables.
Since publicly traded Jamna Auto Industries shares are worth a total of ₹41.1b, it seems unlikely that this level of liabilities would be a major threat. However, we do believe it is worth keeping an eye on its balance sheet strength, as it may modify over time.
View our latest analysis for Jamna Auto 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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Jamna Auto Industries has a low net debt to EBITDA ratio of only 0.71. And its EBIT covers its interest expense a whopping 79.3 times over. So we’re pretty relaxed about its super-conservative apply of debt. On the other hand, Jamna Auto Industries’s EBIT dived 11%, over the last year. We believe 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 it is future earnings, more than anything, that will determine Jamna Auto Industries’s ability to maintain a healthy balance sheet going forward. So if you’re focapplyd on the future you can check out this free report revealing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lconcludeers 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. Looking at the most recent three years, Jamna Auto Industries recorded free cash flow of 36% of its EBIT, which is weaker than we’d expect. That weak cash conversion builds it more difficult to handle indebtedness.
Our View
On our analysis Jamna Auto Industries’s interest cover should signal that it won’t have too much trouble with its debt. However, our other observations weren’t so heartening. For example, its EBIT growth rate builds us a little nervous about its debt. When we consider all the elements mentioned above, it seems to us that Jamna Auto Industries is managing its debt quite well. Having stated that, the load is sufficiently heavy that we would recommconclude any shareholders keep a close eye on it. The balance sheet is clearly the area to focus on when you are analysing debt. 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 Jamna Auto Industries you should know about.
When all is stated and done, sometimes its clearer to focus on companies that don’t even necessary debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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 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.
