Is Balu Forge Industries (NSE:BALUFORGE) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Balu Forge Industries Limited (NSE:BALUFORGE) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Balu Forge Industries's Net Debt?

As you can see below, at the end of September 2025, Balu Forge Industries had ₹640.2m of debt, up from ₹549.3m a year ago. Click the image for more detail. However, because it has a cash reserve of ₹378.2m, its net debt is less, at about ₹262.0m.

How Strong Is Balu Forge Industries' Balance Sheet?

We can see from the most recent balance sheet that Balu Forge Industries had liabilities of ₹2.47b falling due within a year, and liabilities of ₹283.5m due beyond that. On the other hand, it had cash of ₹378.2m and ₹3.71b worth of receivables due within a year. So it actually has ₹1.34b more liquid assets than total liabilities.

Having regard to Balu Forge Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹74.5b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Balu Forge Industries has a very light debt load indeed.

Check out our latest analysis for Balu Forge Industries

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). 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 debt at a measly 0.088 times EBITDA and EBIT covering interest a whopping 46.0 times, it's clear that Balu Forge Industries is not a desperate borrower. So relative to past earnings, the debt load seems trivial. On top of that, Balu Forge Industries grew its EBIT by 69% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Balu Forge Industries's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. During the last three years, Balu Forge Industries burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

Happily, Balu Forge Industries's impressive interest cover implies it has the upper hand on its debt. But we must concede we find its conversion of EBIT to free cash flow has the opposite effect. Taking all this data into account, it seems to us that Balu Forge Industries takes a pretty sensible approach to debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Balu Forge Industries you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.