These 4 Measures Indicate That VA Tech Wabag (NSE:WABAG) Is Using Debt Reasonably Well
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that VA Tech Wabag Limited (NSE:WABAG) does have debt on its balance sheet. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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. 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 examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does VA Tech Wabag Carry?
You can click the graphic below for the historical numbers, but it shows that VA Tech Wabag had ₹2.37b of debt in September 2025, down from ₹4.23b, one year before. However, its balance sheet shows it holds ₹7.98b in cash, so it actually has ₹5.62b net cash.
How Healthy Is VA Tech Wabag's Balance Sheet?
We can see from the most recent balance sheet that VA Tech Wabag had liabilities of ₹24.6b falling due within a year, and liabilities of ₹6.75b due beyond that. On the other hand, it had cash of ₹7.98b and ₹22.4b worth of receivables due within a year. So it has liabilities totalling ₹967.0m more than its cash and near-term receivables, combined.
This state of affairs indicates that VA Tech Wabag's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹81.8b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, VA Tech Wabag boasts net cash, so it's fair to say it does not have a heavy debt load!
See our latest analysis for VA Tech Wabag
Also good is that VA Tech Wabag grew its EBIT at 11% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if VA Tech Wabag can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. VA Tech Wabag 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. Looking at the most recent three years, VA Tech Wabag recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.
Summing Up
While it is always sensible to look at a company's total liabilities, it is very reassuring that VA Tech Wabag has ₹5.62b in net cash. And it also grew its EBIT by 11% over the last year. So is VA Tech Wabag's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for VA Tech Wabag that you should be aware of.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.