We Think Zen Technologies (NSE:ZENTEC) 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.' 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 can see that Zen Technologies Limited (NSE:ZENTEC) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Zen Technologies's Net Debt?

As you can see below, at the end of March 2025, Zen Technologies had ₹541.5m of debt, up from ₹6.15m a year ago. Click the image for more detail. But on the other hand it also has ₹9.66b in cash, leading to a ₹9.12b net cash position.

A Look At Zen Technologies' Liabilities

According to the last reported balance sheet, Zen Technologies had liabilities of ₹2.44b due within 12 months, and liabilities of ₹691.4m due beyond 12 months. On the other hand, it had cash of ₹9.66b and ₹4.68b worth of receivables due within a year. So it can boast ₹11.2b more liquid assets than total liabilities.

This short term liquidity is a sign that Zen Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Zen Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Zen Technologies

Better yet, Zen Technologies grew its EBIT by 107% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Zen 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Zen 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. Considering the last three years, Zen Technologies actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Zen Technologies has net cash of ₹9.12b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 107% over the last year. So we are not troubled with Zen Technologies's debt use. 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, we've discovered 1 warning sign for Zen Technologies that you should be aware of before investing here.

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.