Endurance Technologies (NSE:ENDURANCE) Has A Rock Solid Balance Sheet

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.' 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 can see that Endurance Technologies Limited (NSE:ENDURANCE) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Endurance Technologies

What Is Endurance Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that Endurance Technologies had ₹5.07b of debt in September 2021, down from ₹9.34b, one year before. However, it does have ₹9.03b in cash offsetting this, leading to net cash of ₹3.97b.

How Strong Is Endurance Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Endurance Technologies had liabilities of ₹17.1b due within 12 months and liabilities of ₹3.90b due beyond that. Offsetting this, it had ₹9.03b in cash and ₹9.71b in receivables that were due within 12 months. So its liabilities total ₹2.23b more than the combination of its cash and short-term receivables.

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 while it's hard to imagine that the ₹236.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Endurance Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Endurance Technologies grew its EBIT by 74% 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'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. 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 46% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

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 ₹3.97b. And we liked the look of last year's 74% year-on-year EBIT growth. So is Endurance Technologies's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Endurance Technologies, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.

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