Here's Why Supreme Industries (NSE:SUPREMEIND) Can Manage Its Debt Responsibly
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies The Supreme Industries Limited (NSE:SUPREMEIND) makes use of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Supreme Industries's Debt?
The image below, which you can click on for greater detail, shows that at September 2025 Supreme Industries had debt of ₹2.40b, up from none in one year. However, it does have ₹2.99b in cash offsetting this, leading to net cash of ₹587.3m.
How Healthy Is Supreme Industries' Balance Sheet?
The latest balance sheet data shows that Supreme Industries had liabilities of ₹15.5b due within a year, and liabilities of ₹2.01b falling due after that. Offsetting these obligations, it had cash of ₹2.99b as well as receivables valued at ₹5.90b due within 12 months. So its liabilities total ₹8.58b more than the combination of its cash and short-term receivables.
Since publicly traded Supreme Industries shares are worth a total of ₹416.1b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Supreme Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.
View our latest analysis for Supreme Industries
In fact Supreme Industries's saving grace is its low debt levels, because its EBIT has tanked 22% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Supreme Industries 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. While Supreme Industries 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. In the last three years, Supreme Industries's free cash flow amounted to 28% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.
Summing Up
We could understand if investors are concerned about Supreme Industries's liabilities, but we can be reassured by the fact it has has net cash of ₹587.3m. So we are not troubled with Supreme Industries's debt use. 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. For example, we've discovered 1 warning sign for Supreme Industries that you should be aware of before investing here.
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.