Here's Why Exicom Tele-Systems (NSE:EXICOM) Can Afford Some Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Exicom Tele-Systems Limited (NSE:EXICOM) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Exicom Tele-Systems Carry?

As you can see below, at the end of March 2025, Exicom Tele-Systems had ₹4.56b of debt, up from ₹301.1m a year ago. Click the image for more detail. However, because it has a cash reserve of ₹2.20b, its net debt is less, at about ₹2.36b.

How Strong Is Exicom Tele-Systems' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Exicom Tele-Systems had liabilities of ₹5.54b due within 12 months and liabilities of ₹5.00b due beyond that. Offsetting this, it had ₹2.20b in cash and ₹3.33b in receivables that were due within 12 months. So its liabilities total ₹5.02b more than the combination of its cash and short-term receivables.

Of course, Exicom Tele-Systems has a market capitalization of ₹25.4b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Exicom Tele-Systems will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for Exicom Tele-Systems

In the last year Exicom Tele-Systems had a loss before interest and tax, and actually shrunk its revenue by 15%, to ₹8.7b. That's not what we would hope to see.

Caveat Emptor

Not only did Exicom Tele-Systems's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₹933m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₹7.7b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Exicom Tele-Systems you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.