Is Peria Karamalai Tea and Produce (NSE:PKTEA) A Risky Investment?

Warren Buffett famously said, '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. We can see that The Peria Karamalai Tea and Produce Company Limited (NSE:PKTEA) does use debt in its business. But the more important question is: how much risk is that debt creating?

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

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Peria Karamalai Tea and Produce's Net Debt?

As you can see below, at the end of September 2025, Peria Karamalai Tea and Produce had ₹445.6m of debt, up from ₹210.6m a year ago. Click the image for more detail. However, it does have ₹635.8m in cash offsetting this, leading to net cash of ₹190.2m.

How Strong Is Peria Karamalai Tea and Produce's Balance Sheet?

We can see from the most recent balance sheet that Peria Karamalai Tea and Produce had liabilities of ₹520.1m falling due within a year, and liabilities of ₹97.4m due beyond that. Offsetting these obligations, it had cash of ₹635.8m as well as receivables valued at ₹28.2m due within 12 months. So it actually has ₹46.5m more liquid assets than total liabilities.

Having regard to Peria Karamalai Tea and Produce's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹2.68b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Peria Karamalai Tea and Produce has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Peria Karamalai Tea and Produce's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Peria Karamalai Tea and Produce

In the last year Peria Karamalai Tea and Produce had a loss before interest and tax, and actually shrunk its revenue by 13%, to ₹500m. We would much prefer see growth.

So How Risky Is Peria Karamalai Tea and Produce?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Peria Karamalai Tea and Produce had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₹52m and booked a ₹43m accounting loss. With only ₹190.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Peria Karamalai Tea and Produce has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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.