We Think Endurance Technologies (NSE:ENDURANCE) Can Stay On Top Of Its Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Endurance Technologies Limited (NSE:ENDURANCE) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Endurance Technologies

What Is Endurance Technologies's Net Debt?

As you can see below, at the end of September 2023, Endurance Technologies had ₹6.93b of debt, up from ₹6.51b a year ago. Click the image for more detail. But it also has ₹11.5b in cash to offset that, meaning it has ₹4.56b net cash.

How Healthy Is Endurance Technologies' Balance Sheet?

The latest balance sheet data shows that Endurance Technologies had liabilities of ₹22.2b due within a year, and liabilities of ₹6.26b falling due after that. Offsetting this, it had ₹11.5b in cash and ₹13.0b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹3.97b.

Having regard to Endurance Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹259.2b company is short on cash, but still worth keeping an eye on the 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!

Another good sign is that Endurance Technologies has been able to increase its EBIT by 24% in twelve months, making it easier to pay down 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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 41% 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 ₹4.56b. And we liked the look of last year's 24% year-on-year EBIT growth. So we don't think Endurance Technologies's use of debt is risky. 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. For example - Endurance Technologies has 1 warning sign we think you should be aware of.

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.