Is CMS Info Systems (NSE:CMSINFO) A Risky Investment?

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.' 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. We can see that CMS Info Systems Limited (NSE:CMSINFO) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does CMS Info Systems Carry?

The image below, which you can click on for greater detail, shows that at March 2025 CMS Info Systems had debt of ₹1.90b, up from ₹1.81b in one year. However, its balance sheet shows it holds ₹7.86b in cash, so it actually has ₹5.97b net cash.

A Look At CMS Info Systems' Liabilities

According to the last reported balance sheet, CMS Info Systems had liabilities of ₹6.90b due within 12 months, and liabilities of ₹1.63b due beyond 12 months. Offsetting these obligations, it had cash of ₹7.86b as well as receivables valued at ₹8.57b due within 12 months. So it can boast ₹7.90b more liquid assets than total liabilities.

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

See our latest analysis for CMS Info Systems

Fortunately, CMS Info Systems grew its EBIT by 3.0% in the last year, making that debt load look even more manageable. 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 CMS Info Systems 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. CMS Info Systems 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. Over the most recent three years, CMS Info Systems recorded free cash flow worth 64% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that CMS Info Systems has net cash of ₹5.97b, as well as more liquid assets than liabilities. So we don't think CMS Info Systems's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of CMS Info Systems's earnings per share history for free.

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.