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Mrs. Bectors Food Specialities (NSE:BECTORFOOD) Seems To Use Debt Quite Sensibly

Simply Wall St · 07/10 00:21

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Mrs. Bectors Food Specialities's Debt?

The image below, which you can click on for greater detail, shows that Mrs. Bectors Food Specialities had debt of ₹1.31b at the end of March 2025, a reduction from ₹2.25b over a year. However, it does have ₹2.88b in cash offsetting this, leading to net cash of ₹1.57b.

debt-equity-history-analysis
NSEI:BECTORFOOD Debt to Equity History July 10th 2025

How Strong Is Mrs. Bectors Food Specialities' Balance Sheet?

We can see from the most recent balance sheet that Mrs. Bectors Food Specialities had liabilities of ₹2.69b falling due within a year, and liabilities of ₹1.31b due beyond that. Offsetting this, it had ₹2.88b in cash and ₹1.36b in receivables that were due within 12 months. So it actually has ₹239.1m more liquid assets than total liabilities.

This state of affairs indicates that Mrs. Bectors Food Specialities' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹88.9b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Mrs. Bectors Food Specialities boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Mrs. Bectors Food Specialities

On the other hand, Mrs. Bectors Food Specialities saw its EBIT drop by 3.0% in the last twelve months. 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 it is future earnings, more than anything, that will determine Mrs. Bectors Food Specialities's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Mrs. Bectors Food Specialities 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. Over the last three years, Mrs. Bectors Food Specialities saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Mrs. Bectors Food Specialities has ₹1.57b in net cash and a decent-looking balance sheet. So we are not troubled with Mrs. Bectors Food Specialities's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Mrs. Bectors Food Specialities is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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.