Allcargo Logistics (NSE:ALLCARGO) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Allcargo Logistics Limited (NSE:ALLCARGO) does use debt in its business. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Allcargo Logistics's Net Debt?

The image below, which you can click on for greater detail, shows that Allcargo Logistics had debt of ₹1.16b at the end of September 2025, a reduction from ₹13.6b over a year. But it also has ₹1.52b in cash to offset that, meaning it has ₹360.0m net cash.

A Look At Allcargo Logistics' Liabilities

According to the last reported balance sheet, Allcargo Logistics had liabilities of ₹6.91b due within 12 months, and liabilities of ₹5.66b due beyond 12 months. On the other hand, it had cash of ₹1.52b and ₹4.27b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹6.78b.

This deficit is considerable relative to its market capitalization of ₹11.2b, so it does suggest shareholders should keep an eye on Allcargo Logistics' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Allcargo Logistics also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Allcargo Logistics

Also relevant is that Allcargo Logistics has grown its EBIT by a very respectable 20% in the last year, thus enhancing its ability to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Allcargo Logistics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Allcargo Logistics has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Allcargo Logistics actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although Allcargo Logistics's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹360.0m. And it impressed us with free cash flow of ₹3.0b, being 112% of its EBIT. So we don't have any problem with Allcargo Logistics's use of debt. 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. To that end, you should learn about the 4 warning signs we've spotted with Allcargo Logistics (including 1 which is significant) .

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.

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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.