Is SKM Egg Products Export (India) (NSE:SKMEGGPROD) Using Too Much Debt?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that SKM Egg Products Export (India) Limited (NSE:SKMEGGPROD) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does SKM Egg Products Export (India) Carry?

The image below, which you can click on for greater detail, shows that at September 2025 SKM Egg Products Export (India) had debt of ₹1.47b, up from ₹1.39b in one year. However, it does have ₹1.56b in cash offsetting this, leading to net cash of ₹90.1m.

How Healthy Is SKM Egg Products Export (India)'s Balance Sheet?

The latest balance sheet data shows that SKM Egg Products Export (India) had liabilities of ₹1.79b due within a year, and liabilities of ₹639.4m falling due after that. Offsetting these obligations, it had cash of ₹1.56b as well as receivables valued at ₹806.2m due within 12 months. So it has liabilities totalling ₹65.2m more than its cash and near-term receivables, combined.

This state of affairs indicates that SKM Egg Products Export (India)'s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹11.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, SKM Egg Products Export (India) also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for SKM Egg Products Export (India)

On top of that, SKM Egg Products Export (India) grew its EBIT by 50% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is SKM Egg Products Export (India)'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 trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. SKM Egg Products Export (India) 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. In the last three years, SKM Egg Products Export (India)'s free cash flow amounted to 31% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that SKM Egg Products Export (India) has ₹90.1m in net cash. And it impressed us with its EBIT growth of 50% over the last year. So is SKM Egg Products Export (India)'s debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with SKM Egg Products Export (India) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need 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 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.