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.' 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 Basilic Fly Studio Limited (NSE:BASILIC) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. 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. 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 Basilic Fly Studio Carry?
As you can see below, at the end of March 2025, Basilic Fly Studio had ₹512.2m of debt, up from ₹24.2m a year ago. Click the image for more detail. However, it does have ₹428.5m in cash offsetting this, leading to net debt of about ₹83.7m.
A Look At Basilic Fly Studio's Liabilities
The latest balance sheet data shows that Basilic Fly Studio had liabilities of ₹548.4m due within a year, and liabilities of ₹428.4m falling due after that. Offsetting these obligations, it had cash of ₹428.5m as well as receivables valued at ₹775.4m due within 12 months. So it can boast ₹227.1m more liquid assets than total liabilities.
Having regard to Basilic Fly Studio's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹11.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Basilic Fly Studio has virtually no net debt, so it's fair to say it does not have a heavy debt load!
View our latest analysis for Basilic Fly Studio
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Basilic Fly Studio's net debt is only 0.13 times its EBITDA. And its EBIT covers its interest expense a whopping 14.4 times over. So we're pretty relaxed about its super-conservative use of debt. Also positive, Basilic Fly Studio grew its EBIT by 22% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Basilic Fly Studio's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Basilic Fly Studio burned a lot of cash. 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.
Our View
Basilic Fly Studio's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. But the stark truth is that we are concerned by its conversion of EBIT to free cash flow. Looking at all the aforementioned factors together, it strikes us that Basilic Fly Studio can handle its debt fairly comfortably. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. 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. To that end, you should learn about the 2 warning signs we've spotted with Basilic Fly Studio (including 1 which can't be ignored) .
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.