Does Endurance Technologies (NSE:ENDURANCE) Have A Healthy Balance Sheet?

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. We note that Endurance Technologies Limited (NSE:ENDURANCE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Endurance Technologies

What Is Endurance Technologies's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Endurance Technologies had debt of ₹7.41b, up from ₹6.63b in one year. However, it does have ₹11.2b in cash offsetting this, leading to net cash of ₹3.75b.

How Healthy Is Endurance Technologies' Balance Sheet?

According to the last reported balance sheet, Endurance Technologies had liabilities of ₹25.5b due within 12 months, and liabilities of ₹6.51b due beyond 12 months. Offsetting these obligations, it had cash of ₹11.2b as well as receivables valued at ₹17.6b due within 12 months. So it has liabilities totalling ₹3.23b more than its cash and near-term receivables, combined.

This state of affairs indicates that Endurance Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹337.6b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Endurance Technologies also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Endurance Technologies grew its EBIT by 33% over the last twelve months, and that growth will make it easier to handle its debt. 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 Endurance Technologies'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Endurance Technologies 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, Endurance Technologies recorded free cash flow of 24% of its EBIT, which is weaker 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 Endurance Technologies's liabilities, but we can be reassured by the fact it has has net cash of ₹3.75b. And it impressed us with its EBIT growth of 33% over the last year. So we don't think Endurance Technologies's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Endurance Technologies that you should be aware of before investing here.

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.

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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.