Here's Why Jyoti CNC Automation (NSE:JYOTICNC) Can Manage Its Debt Responsibly
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Jyoti CNC Automation Limited (NSE:JYOTICNC) makes use of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Jyoti CNC Automation's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Jyoti CNC Automation had ₹7.24b of debt, an increase on ₹2.50b, over one year. However, it also had ₹2.01b in cash, and so its net debt is ₹5.23b.
How Strong Is Jyoti CNC Automation's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Jyoti CNC Automation had liabilities of ₹9.86b due within 12 months and liabilities of ₹2.81b due beyond that. Offsetting these obligations, it had cash of ₹2.01b as well as receivables valued at ₹3.68b due within 12 months. So its liabilities total ₹6.97b more than the combination of its cash and short-term receivables.
Given Jyoti CNC Automation has a market capitalization of ₹219.6b, 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.
See our latest analysis for Jyoti CNC Automation
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Jyoti CNC Automation's net debt is only 1.0 times its EBITDA. And its EBIT covers its interest expense a whopping 14.1 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Also positive, Jyoti CNC Automation grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Jyoti CNC Automation can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Jyoti CNC Automation 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.
Our View
The good news is that Jyoti CNC Automation's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. But the stark truth is that we are concerned by its conversion of EBIT to free cash flow. All these things considered, it appears that Jyoti CNC Automation can comfortably handle its current debt levels. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Jyoti CNC Automation .
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.