Is Ashima (NSE:ASHIMASYN) A Risky Investment?
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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Ashima Limited (NSE:ASHIMASYN) does carry debt. But should shareholders be worried about its use of debt?
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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Ashima's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Ashima had ₹1.68b of debt, an increase on ₹1.24b, over one year. However, it does have ₹1.56b in cash offsetting this, leading to net debt of about ₹119.2m.
How Healthy Is Ashima's Balance Sheet?
According to the last reported balance sheet, Ashima had liabilities of ₹1.14b due within 12 months, and liabilities of ₹1.68b due beyond 12 months. Offsetting this, it had ₹1.56b in cash and ₹17.2m in receivables that were due within 12 months. So its liabilities total ₹1.24b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Ashima has a market capitalization of ₹3.20b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ashima'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.
See our latest analysis for Ashima
In the last year Ashima had a loss before interest and tax, and actually shrunk its revenue by 99%, to ₹17m. To be frank that doesn't bode well.
Caveat Emptor
While Ashima's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₹50m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₹143m of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Ashima is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...
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.