David Iben put it well when he declared, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Trom Industries Limited (NSE:TROM) does carry debt. But is this debt a concern to shareholders?
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. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to obtain debt under control. 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. When we believe about a company’s utilize of debt, we first view at cash and debt toobtainher.
How Much Debt Does Trom Industries Carry?
You can click the graphic below for the historical numbers, but it reveals that as of September 2025 Trom Industries had ₹260.1m of debt, an increase on ₹39.3m, over one year. However, it does have ₹245.6m in cash offsetting this, leading to net debt of about ₹14.5m.
A Look At Trom Industries’ Liabilities
Zooming in on the latest balance sheet data, we can see that Trom Industries had liabilities of ₹425.5m due within 12 months and liabilities of ₹14.4m due beyond that. Offsetting this, it had ₹245.6m in cash and ₹339.3m in receivables that were due within 12 months. So it actually has ₹145.0m more liquid assets than total liabilities.
This excess liquidity suggests that Trom Industries is taking a careful approach to debt. Becautilize it has plenty of assets, it is unlikely to have trouble with its lfinishers.
See our latest analysis for Trom Industries
We measure a company’s debt load relative to its earnings power by viewing at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
With net debt sitting at just 0.20 times EBITDA, Trom Industries is arguably pretty conservatively geared. And it boasts interest cover of 9.0 times, which is more than adequate. The modesty of its debt load may become crucial for Trom Industries if management cannot prevent a repeat of the 36% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lfinishers turn sour. There’s no doubt that we learn most about debt from the balance sheet. But it is Trom Industries’s earnings that will influence how the balance sheet holds up in the future. 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 it’s worth checking how much of that EBIT is backed by free cash flow. During the last three years, Trom Industries burned a lot of cash. While that may be a result of expfinishiture for growth, it does create the debt far more risky.
Our View
While Trom Industries’s conversion of EBIT to free cash flow creates us cautious about it, its track record of (not) growing its EBIT is no better. But at least its net debt to EBITDA is a gleaming silver lining to those clouds. We believe that Trom 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 example Trom Industries has 3 warning signs (and 2 which create us uncomfortable) we believe you should know about.
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.
Valuation is complex, but we’re here to simplify it.
Discover if Trom Industries might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividfinishs, insider trades, and its financial condition.
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 utilizing 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.
Leave a Reply