DEN Networks (NSE:DEN) Has Debt But No Earnings; Should You Worry?

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.' 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 note that DEN Networks Limited (NSE:DEN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is DEN Networks's Net Debt?

The image below, which you can click on for greater detail, shows that DEN Networks had debt of ₹243.7m at the end of September 2024, a reduction from ₹265.8m over a year. However, it does have ₹30.5b in cash offsetting this, leading to net cash of ₹30.3b.

A Look At DEN Networks' Liabilities

The latest balance sheet data shows that DEN Networks had liabilities of ₹4.59b due within a year, and liabilities of ₹482.0m falling due after that. Offsetting these obligations, it had cash of ₹30.5b as well as receivables valued at ₹1.44b due within 12 months. So it actually has ₹26.9b more liquid assets than total liabilities.

This excess liquidity is a great indication that DEN Networks' balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, DEN Networks boasts net cash, so it's fair to say it does not have a heavy debt load! 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 DEN Networks 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.

Check out our latest analysis for DEN Networks

Over 12 months, DEN Networks made a loss at the EBIT level, and saw its revenue drop to ₹9.7b, which is a fall of 12%. That's not what we would hope to see.

So How Risky Is DEN Networks?

While DEN Networks lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹1.8b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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 be aware of the 1 warning sign we've spotted with DEN Networks .

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.