Is TBO Tek (NSE:TBOTEK) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. We can see that TBO Tek Limited (NSE:TBOTEK) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is TBO Tek's Debt?

As you can see below, TBO Tek had ₹1.36b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has ₹11.3b in cash to offset that, meaning it has ₹9.96b net cash.

A Look At TBO Tek's Liabilities

The latest balance sheet data shows that TBO Tek had liabilities of ₹48.4b due within a year, and liabilities of ₹1.83b falling due after that. Offsetting this, it had ₹11.3b in cash and ₹41.0b in receivables that were due within 12 months. So it can boast ₹2.08b more liquid assets than total liabilities.

Having regard to TBO Tek's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹145.7b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, TBO Tek boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for TBO Tek

And we also note warmly that TBO Tek grew its EBIT by 18% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine TBO Tek'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. TBO Tek 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 three years, TBO Tek generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case TBO Tek has ₹9.96b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 96% of that EBIT to free cash flow, bringing in ₹2.4b. So we don't think TBO Tek's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in TBO Tek, you may well want to click here to check an interactive graph of its earnings per share history.

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.