Is R & B Denims (NSE:RNBDENIMS) Using Too Much Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, R & B Denims Limited (NSE:RNBDENIMS) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is R & B Denims's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 R & B Denims had debt of ₹850.4m, up from ₹681.7m in one year. However, because it has a cash reserve of ₹141.9m, its net debt is less, at about ₹708.6m.

How Healthy Is R & B Denims' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that R & B Denims had liabilities of ₹922.4m due within 12 months and liabilities of ₹206.7m due beyond that. Offsetting these obligations, it had cash of ₹141.9m as well as receivables valued at ₹660.4m due within 12 months. So it has liabilities totalling ₹326.8m more than its cash and near-term receivables, combined.

Given R & B Denims has a market capitalization of ₹11.7b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.

Check out our latest analysis for R & B Denims

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

R & B Denims's net debt to EBITDA ratio of about 1.5 suggests only moderate use of debt. And its commanding EBIT of 20.3 times its interest expense, implies the debt load is as light as a peacock feather. R & B Denims's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. There's no doubt that we learn most about debt from the balance sheet. But it is R & B Denims'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we always check how much of that EBIT is translated into free cash flow. Looking at the most recent three years, R & B Denims recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

Happily, R & B Denims's impressive interest cover implies it has the upper hand on its debt. And we also thought its level of total liabilities was a positive. Looking at all the aforementioned factors together, it strikes us that R & B Denims can handle its debt fairly comfortably. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with R & B Denims , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.