Here's Why Inventurus Knowledge Solutions (NSE:IKS) Can Manage Its Debt Responsibly

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 note that Inventurus Knowledge Solutions Limited (NSE:IKS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Inventurus Knowledge Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that Inventurus Knowledge Solutions had debt of ₹7.55b at the end of March 2025, a reduction from ₹11.9b over a year. However, it also had ₹1.92b in cash, and so its net debt is ₹5.63b.

A Look At Inventurus Knowledge Solutions' Liabilities

Zooming in on the latest balance sheet data, we can see that Inventurus Knowledge Solutions had liabilities of ₹5.21b due within 12 months and liabilities of ₹7.41b due beyond that. On the other hand, it had cash of ₹1.92b and ₹5.32b worth of receivables due within a year. So it has liabilities totalling ₹5.38b more than its cash and near-term receivables, combined.

This state of affairs indicates that Inventurus Knowledge Solutions' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹270.9b company is short on cash, but still worth keeping an eye on the balance sheet.

See our latest analysis for Inventurus Knowledge Solutions

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

With net debt sitting at just 0.73 times EBITDA, Inventurus Knowledge Solutions is arguably pretty conservatively geared. And this view is supported by the solid interest coverage, with EBIT coming in at 7.3 times the interest expense over the last year. On top of that, Inventurus Knowledge Solutions grew its EBIT by 38% over the last twelve months, and that growth will make it easier to handle its debt. 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 Inventurus Knowledge Solutions'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. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. In the last three years, Inventurus Knowledge Solutions's free cash flow amounted to 48% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

The good news is that Inventurus Knowledge Solutions's demonstrated ability to grow its EBIT delights us like a fluffy puppy does a toddler. And the good news does not stop there, as its net debt to EBITDA also supports that impression! We would also note that Healthcare Services industry companies like Inventurus Knowledge Solutions commonly do use debt without problems. Zooming out, Inventurus Knowledge Solutions seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. We'd be motivated to research the stock further if we found out that Inventurus Knowledge Solutions insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions 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.