Is Quality Power Electrical Equipments (NSE:QPOWER) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Quality Power Electrical Equipments Limited (NSE:QPOWER) makes use of debt. But is this debt a concern to shareholders?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Quality Power Electrical Equipments's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Quality Power Electrical Equipments had debt of ₹361.5m, up from ₹89.0m in one year. But it also has ₹2.21b in cash to offset that, meaning it has ₹1.85b net cash.

A Look At Quality Power Electrical Equipments' Liabilities

The latest balance sheet data shows that Quality Power Electrical Equipments had liabilities of ₹2.85b due within a year, and liabilities of ₹339.0m falling due after that. Offsetting this, it had ₹2.21b in cash and ₹2.12b in receivables that were due within 12 months. So it can boast ₹1.14b more liquid assets than total liabilities.

This surplus suggests that Quality Power Electrical Equipments has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Quality Power Electrical Equipments has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Quality Power Electrical Equipments

On top of that, Quality Power Electrical Equipments grew its EBIT by 67% 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 future earnings, more than anything, that will determine Quality Power Electrical Equipments's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Quality Power Electrical Equipments 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, Quality Power Electrical Equipments reported free cash flow worth 13% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Quality Power Electrical Equipments has net cash of ₹1.85b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 67% over the last year. So is Quality Power Electrical Equipments's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Quality Power Electrical Equipments you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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 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.