Hathway Cable and Datacom (NSE:HATHWAY) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Hathway Cable and Datacom Limited (NSE:HATHWAY) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Hathway Cable and Datacom

What Is Hathway Cable and Datacom's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Hathway Cable and Datacom had ₹196.6m of debt, an increase on ₹50.7m, over one year. However, its balance sheet shows it holds ₹17.6b in cash, so it actually has ₹17.4b net cash.

A Look At Hathway Cable and Datacom's Liabilities

We can see from the most recent balance sheet that Hathway Cable and Datacom had liabilities of ₹6.38b falling due within a year, and liabilities of ₹343.9m due beyond that. Offsetting this, it had ₹17.6b in cash and ₹2.78b in receivables that were due within 12 months. So it actually has ₹13.7b more liquid assets than total liabilities.

This surplus strongly suggests that Hathway Cable and Datacom has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Hathway Cable and Datacom has more cash than debt is arguably a good indication that it can manage its debt safely.

Although Hathway Cable and Datacom made a loss at the EBIT level, last year, it was also good to see that it generated ₹653m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hathway Cable and Datacom 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Hathway Cable and Datacom 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 year, Hathway Cable and Datacom burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hathway Cable and Datacom has ₹17.4b in net cash and a decent-looking balance sheet. So we are not troubled with Hathway Cable and Datacom's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Hathway Cable and Datacom's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com