Here's Why Schneider Electric Infrastructure (NSE:SCHNEIDER) 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. We can see that Schneider Electric Infrastructure Limited (NSE:SCHNEIDER) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Schneider Electric Infrastructure's Net Debt?

The image below, which you can click on for greater detail, shows that Schneider Electric Infrastructure had debt of ₹4.28b at the end of March 2025, a reduction from ₹4.69b over a year. However, it does have ₹2.58b in cash offsetting this, leading to net debt of about ₹1.69b.

How Strong Is Schneider Electric Infrastructure's Balance Sheet?

According to the last reported balance sheet, Schneider Electric Infrastructure had liabilities of ₹8.06b due within 12 months, and liabilities of ₹5.65b due beyond 12 months. Offsetting this, it had ₹2.58b in cash and ₹6.67b in receivables that were due within 12 months. So it has liabilities totalling ₹4.45b more than its cash and near-term receivables, combined.

Given Schneider Electric Infrastructure has a market capitalization of ₹197.1b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Schneider Electric Infrastructure has virtually no net debt, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Schneider Electric Infrastructure

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

With net debt sitting at just 0.44 times EBITDA, Schneider Electric Infrastructure is arguably pretty conservatively geared. And it boasts interest cover of 7.3 times, which is more than adequate. Also positive, Schneider Electric Infrastructure grew its EBIT by 30% 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 it is future earnings, more than anything, that will determine Schneider Electric Infrastructure's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the most recent three years, Schneider Electric Infrastructure recorded free cash flow worth 55% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

Happily, Schneider Electric Infrastructure's impressive EBIT growth rate implies it has the upper hand on its debt. And the good news does not stop there, as its net debt to EBITDA also supports that impression! Zooming out, Schneider Electric Infrastructure seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Schneider Electric Infrastructure's earnings per share history for free.

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.