These 4 Measures Indicate That Paras Defence and Space Technologies (NSE:PARAS) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Paras Defence and Space Technologies Limited (NSE:PARAS) does use debt in its business. But the more important question is: how much risk is that debt creating?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Paras Defence and Space Technologies Carry?

The image below, which you can click on for greater detail, shows that Paras Defence and Space Technologies had debt of ₹553.3m at the end of September 2025, a reduction from ₹678.2m over a year. But on the other hand it also has ₹894.1m in cash, leading to a ₹340.8m net cash position.

How Healthy Is Paras Defence and Space Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Paras Defence and Space Technologies had liabilities of ₹2.36b due within 12 months and liabilities of ₹204.6m due beyond that. On the other hand, it had cash of ₹894.1m and ₹3.57b worth of receivables due within a year. So it can boast ₹1.90b more liquid assets than total liabilities.

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

View our latest analysis for Paras Defence and Space Technologies

In addition to that, we're happy to report that Paras Defence and Space Technologies has boosted its EBIT by 51%, thus reducing the spectre of future debt repayments. 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 Paras Defence and Space Technologies'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 company can only pay off debt with cold hard cash, not accounting profits. Paras Defence and Space Technologies 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, Paras Defence and Space Technologies burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Paras Defence and Space Technologies has ₹340.8m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 51% over the last year. So we don't have any problem with Paras Defence and Space Technologies's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Paras Defence and Space Technologies, you may well want to click here to check an interactive graph of its earnings per share history.

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.