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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Endurance Technologies Limited (NSE:ENDURANCE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Endurance Technologies

What Is Endurance Technologies's Net Debt?

As you can see below, at the end of September 2024, Endurance Technologies had ₹7.63b of debt, up from ₹6.93b a year ago. Click the image for more detail. But it also has ₹11.2b in cash to offset that, meaning it has ₹3.53b net cash.

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 this, it had ₹11.2b in cash and ₹17.6b in receivables that were due within 12 months. So it has liabilities totalling ₹3.23b more than its cash and near-term receivables, combined.

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 ₹248.4b 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!

In addition to that, we're happy to report that Endurance Technologies has boosted its EBIT by 31%, thus reducing the spectre of future debt repayments. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Endurance Technologies 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. In the last three years, Endurance Technologies's free cash flow amounted to 22% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Endurance Technologies has ₹3.53b in net cash. And we liked the look of last year's 31% 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. Case in point: We've spotted 1 warning sign for Endurance Technologies 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.