Is Vraj Iron and Steel (NSE:VRAJ) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Vraj Iron and Steel Limited (NSE:VRAJ) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Vraj Iron and Steel's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 Vraj Iron and Steel had debt of ₹252.7m, up from ₹51.5m in one year. However, it does have ₹327.0m in cash offsetting this, leading to net cash of ₹74.3m.

A Look At Vraj Iron and Steel's Liabilities

The latest balance sheet data shows that Vraj Iron and Steel had liabilities of ₹385.4m due within a year, and liabilities of ₹130.6m falling due after that. Offsetting these obligations, it had cash of ₹327.0m as well as receivables valued at ₹182.3m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Vraj Iron and Steel's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹4.51b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Vraj Iron and Steel also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Vraj Iron and Steel

The modesty of its debt load may become crucial for Vraj Iron and Steel if management cannot prevent a repeat of the 33% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But it is Vraj Iron and Steel's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Vraj Iron and Steel 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. Over the last three years, Vraj Iron and Steel saw substantial negative free cash flow, in total. 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 look at a company's total liabilities, it is very reassuring that Vraj Iron and Steel has ₹74.3m in net cash. So while Vraj Iron and Steel does not have a great balance sheet, it's certainly not too bad. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Vraj Iron and Steel (of which 1 doesn't sit too well with us!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.