Here's Why Cera Sanitaryware (NSE:CERA) Can Manage Its Debt Responsibly

Simply Wall St · 06/10 00:19

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Cera Sanitaryware Limited (NSE:CERA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Cera Sanitaryware's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Cera Sanitaryware had ₹181.1m of debt in March 2025, down from ₹204.6m, one year before. However, its balance sheet shows it holds ₹7.05b in cash, so it actually has ₹6.86b net cash.

debt-equity-history-analysis
NSEI:CERA Debt to Equity History June 10th 2025

A Look At Cera Sanitaryware's Liabilities

We can see from the most recent balance sheet that Cera Sanitaryware had liabilities of ₹3.71b falling due within a year, and liabilities of ₹1.23b due beyond that. Offsetting this, it had ₹7.05b in cash and ₹2.71b in receivables that were due within 12 months. So it actually has ₹4.81b more liquid assets than total liabilities.

This short term liquidity is a sign that Cera Sanitaryware could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Cera Sanitaryware has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Cera Sanitaryware

But the other side of the story is that Cera Sanitaryware saw its EBIT decline by 3.0% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Cera Sanitaryware 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Cera Sanitaryware 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, Cera Sanitaryware recorded free cash flow of 49% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Cera Sanitaryware has net cash of ₹6.86b, as well as more liquid assets than liabilities. So we are not troubled with Cera Sanitaryware's debt use. 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. For instance, we've identified 2 warning signs for Cera Sanitaryware (1 is concerning) you should be aware of.

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.