Is Sai Life Sciences (NSE:SAILIFE) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Sai Life Sciences Limited (NSE:SAILIFE) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Sai Life Sciences Carry?

The image below, which you can click on for greater detail, shows that Sai Life Sciences had debt of ₹2.15b at the end of September 2025, a reduction from ₹7.67b over a year. But on the other hand it also has ₹3.06b in cash, leading to a ₹907.5m net cash position.

How Strong Is Sai Life Sciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sai Life Sciences had liabilities of ₹7.75b due within 12 months and liabilities of ₹2.86b due beyond that. On the other hand, it had cash of ₹3.06b and ₹4.92b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹2.64b.

Having regard to Sai Life Sciences' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹184.3b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Sai Life Sciences boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Sai Life Sciences

On top of that, Sai Life Sciences grew its EBIT by 80% 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 ultimately the future profitability of the business will decide if Sai Life Sciences can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Sai Life Sciences 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, Sai Life Sciences recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Sai Life Sciences has ₹907.5m in net cash. And we liked the look of last year's 80% year-on-year EBIT growth. So we don't have any problem with Sai Life Sciences's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Sai Life Sciences that you should be aware of.

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.