Is Techno Electric & Engineering (NSE:TECHNOE) Using Too Much Debt?

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.' 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. As with many other companies Techno Electric & Engineering Company Limited (NSE:TECHNOE) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Techno Electric & Engineering's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Techno Electric & Engineering had debt of ₹390.9m, up from none in one year. But on the other hand it also has ₹29.3b in cash, leading to a ₹28.9b net cash position.

A Look At Techno Electric & Engineering's Liabilities

The latest balance sheet data shows that Techno Electric & Engineering had liabilities of ₹9.48b due within a year, and liabilities of ₹3.69b falling due after that. Offsetting this, it had ₹29.3b in cash and ₹6.77b in receivables that were due within 12 months. So it actually has ₹22.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Techno Electric & Engineering could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Techno Electric & Engineering has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Techno Electric & Engineering

On top of that, Techno Electric & Engineering grew its EBIT by 64% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Techno Electric & Engineering can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Techno Electric & Engineering 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. Over the last three years, Techno Electric & Engineering recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to investigate a company's debt, in this case Techno Electric & Engineering has ₹28.9b in net cash and a decent-looking balance sheet. And we liked the look of last year's 64% year-on-year EBIT growth. So we don't think Techno Electric & Engineering's use of debt is risky. 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. Be aware that Techno Electric & Engineering is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.