These 4 Measures Indicate That RattanIndia Enterprises (NSE:RTNINDIA) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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, RattanIndia Enterprises Limited (NSE:RTNINDIA) does carry debt. But is this debt a concern to shareholders?

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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 get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is RattanIndia Enterprises's Debt?

You can click the graphic below for the historical numbers, but it shows that RattanIndia Enterprises had ₹8.82b of debt in March 2025, down from ₹11.6b, one year before. However, it does have ₹11.8b in cash offsetting this, leading to net cash of ₹2.98b.

A Look At RattanIndia Enterprises' Liabilities

According to the last reported balance sheet, RattanIndia Enterprises had liabilities of ₹16.1b due within 12 months, and liabilities of ₹971.0m due beyond 12 months. Offsetting this, it had ₹11.8b in cash and ₹511.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹4.81b.

Given RattanIndia Enterprises has a market capitalization of ₹91.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, RattanIndia Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for RattanIndia Enterprises

Pleasingly, RattanIndia Enterprises is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 486% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since RattanIndia Enterprises will need 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 trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. RattanIndia Enterprises may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, RattanIndia Enterprises 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 use of debt is more risky.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that RattanIndia Enterprises has ₹2.98b in net cash. And we liked the look of last year's 486% year-on-year EBIT growth. So we are not troubled with RattanIndia Enterprises's debt use. 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. Be aware that RattanIndia Enterprises is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.

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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 using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused 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.