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華爾街日報Here's Why Emami (NSE:EMAMILTD) Can Manage Its Debt Responsibly
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Emami Limited (NSE:EMAMILTD) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Emami Carry?
As you can see below, Emami had ₹418.0m of debt at September 2025, down from ₹480.0m a year prior. But on the other hand it also has ₹8.04b in cash, leading to a ₹7.62b net cash position.
How Healthy Is Emami's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Emami had liabilities of ₹6.79b due within 12 months and liabilities of ₹631.8m due beyond that. Offsetting these obligations, it had cash of ₹8.04b as well as receivables valued at ₹3.76b due within 12 months. So it can boast ₹4.39b more liquid assets than total liabilities.
Having regard to Emami's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹225.5b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Emami boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for Emami
But the other side of the story is that Emami saw its EBIT decline by 4.8% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Emami 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Emami 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, Emami generated free cash flow amounting to a very robust 97% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Emami has net cash of ₹7.62b, as well as more liquid assets than liabilities. The cherry on top was that in converted 97% of that EBIT to free cash flow, bringing in ₹6.9b. So we don't think Emami's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Emami , and understanding them should be part of your investment process.
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.