Krishna Institute of Medical Sciences (NSE:KIMS) Takes On Some Risk With Its Use Of Debt

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. As with many other companies Krishna Institute of Medical Sciences Limited (NSE:KIMS) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Krishna Institute of Medical Sciences's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Krishna Institute of Medical Sciences had ₹25.1b of debt, an increase on ₹14.5b, over one year. On the flip side, it has ₹1.20b in cash leading to net debt of about ₹23.9b.

How Strong Is Krishna Institute of Medical Sciences' Balance Sheet?

According to the last reported balance sheet, Krishna Institute of Medical Sciences had liabilities of ₹11.5b due within 12 months, and liabilities of ₹29.0b due beyond 12 months. Offsetting this, it had ₹1.20b in cash and ₹5.15b in receivables that were due within 12 months. So its liabilities total ₹34.1b more than the combination of its cash and short-term receivables.

Of course, Krishna Institute of Medical Sciences has a market capitalization of ₹245.7b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.

See our latest analysis for Krishna Institute of Medical Sciences

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Krishna Institute of Medical Sciences's debt is 3.2 times its EBITDA, and its EBIT cover its interest expense 4.8 times over. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. We saw Krishna Institute of Medical Sciences grow its EBIT by 4.3% in the last twelve months. Whilst that hardly knocks our socks off it is a positive when it comes to debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Krishna Institute of Medical Sciences can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Krishna Institute of Medical Sciences burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

Krishna Institute of Medical Sciences's conversion of EBIT to free cash flow was a real negative on this analysis, although the other factors we considered cast it in a significantly better light. For example, its level of total liabilities is relatively strong. We should also note that Healthcare industry companies like Krishna Institute of Medical Sciences commonly do use debt without problems. We think that Krishna Institute of Medical Sciences's debt does make it a bit risky, after considering the aforementioned data points together. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. 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. Case in point: We've spotted 2 warning signs for Krishna Institute of Medical Sciences you should be aware of, and 1 of them is significant.

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.

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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.