Here's Why Vinsys IT Services India (NSE:VINSYS) Can Manage Its Debt Responsibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. Importantly, Vinsys IT Services India Limited (NSE:VINSYS) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Vinsys IT Services India's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Vinsys IT Services India had debt of ₹193.5m, up from ₹180.3m in one year. But it also has ₹199.5m in cash to offset that, meaning it has ₹6.05m net cash.

How Healthy Is Vinsys IT Services India's Balance Sheet?

According to the last reported balance sheet, Vinsys IT Services India had liabilities of ₹343.4m due within 12 months, and liabilities of ₹147.5m due beyond 12 months. On the other hand, it had cash of ₹199.5m and ₹748.7m worth of receivables due within a year. So it can boast ₹457.3m more liquid assets than total liabilities.

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

Check out our latest analysis for Vinsys IT Services India

In addition to that, we're happy to report that Vinsys IT Services India has boosted its EBIT by 43%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Vinsys IT Services India 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Vinsys IT Services India 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 last three years, Vinsys IT Services India saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Vinsys IT Services India has net cash of ₹6.05m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 43% over the last year. So we don't have any problem with Vinsys IT Services India's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Vinsys IT Services India (of which 1 is a bit concerning!) you should know about.

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.