These 4 Measures Indicate That Rajoo Engineers (NSE:RAJOOENG) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Rajoo Engineers Limited (NSE:RAJOOENG) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Rajoo Engineers's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Rajoo Engineers had ₹175.1m of debt, an increase on none, over one year. However, it does have ₹1.32b in cash offsetting this, leading to net cash of ₹1.14b.

How Healthy Is Rajoo Engineers' Balance Sheet?

The latest balance sheet data shows that Rajoo Engineers had liabilities of ₹2.67b due within a year, and liabilities of ₹47.0m falling due after that. Offsetting this, it had ₹1.32b in cash and ₹527.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹870.1m.

Given Rajoo Engineers has a market capitalization of ₹13.9b, 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, Rajoo Engineers boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Rajoo Engineers

Better yet, Rajoo Engineers grew its EBIT by 117% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Rajoo Engineers'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. Rajoo Engineers 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. During the last three years, Rajoo Engineers produced sturdy free cash flow equating to 65% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Rajoo Engineers has ₹1.14b in net cash. And we liked the look of last year's 117% year-on-year EBIT growth. So we don't think Rajoo Engineers's use of debt is risky. 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. For example - Rajoo Engineers has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.