Is Le Travenues Technology (NSE:IXIGO) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Le Travenues Technology Limited (NSE:IXIGO) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

Check out our latest analysis for Le Travenues Technology

What Is Le Travenues Technology's Debt?

As you can see below, at the end of March 2024, Le Travenues Technology had ₹460.5m of debt, up from ₹5.35m a year ago. Click the image for more detail. However, it does have ₹1.32b in cash offsetting this, leading to net cash of ₹860.9m.

How Strong Is Le Travenues Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Le Travenues Technology had liabilities of ₹1.78b due within 12 months and liabilities of ₹80.2m due beyond that. Offsetting these obligations, it had cash of ₹1.32b as well as receivables valued at ₹427.3m due within 12 months. So it has liabilities totalling ₹112.7m more than its cash and near-term receivables, combined.

This state of affairs indicates that Le Travenues Technology's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹55.1b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Le Travenues Technology also has more cash than debt, so we're pretty confident it can manage its debt safely.

Another good sign is that Le Travenues Technology has been able to increase its EBIT by 29% in twelve months, making it easier to pay down debt. 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 Le Travenues Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Le Travenues Technology 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. During the last two years, Le Travenues Technology produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Le Travenues Technology has ₹860.9m in net cash. And we liked the look of last year's 29% year-on-year EBIT growth. So is Le Travenues Technology's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for Le Travenues Technology you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.