Does Info Edge (India) (NSE:NAUKRI) Have A Healthy Balance Sheet?

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.' 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. Importantly, Info Edge (India) Limited (NSE:NAUKRI) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Info Edge (India)

What Is Info Edge (India)'s Net Debt?

The image below, which you can click on for greater detail, shows that at March 2023 Info Edge (India) had debt of ₹1.08b, up from ₹640.7m in one year. However, it does have ₹35.2b in cash offsetting this, leading to net cash of ₹34.1b.

How Strong Is Info Edge (India)'s Balance Sheet?

We can see from the most recent balance sheet that Info Edge (India) had liabilities of ₹13.5b falling due within a year, and liabilities of ₹8.85b due beyond that. Offsetting this, it had ₹35.2b in cash and ₹1.35b in receivables that were due within 12 months. So it can boast ₹14.2b more liquid assets than total liabilities.

This surplus suggests that Info Edge (India) has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Info Edge (India) has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Info Edge (India) has boosted its EBIT by 56%, thus reducing the spectre of future debt repayments. 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 Info Edge (India)'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Info Edge (India) 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. Over the last three years, Info Edge (India) actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Info Edge (India) has ₹34.1b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 120% of that EBIT to free cash flow, bringing in ₹4.6b. So is Info Edge (India)'s debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Info Edge (India) you should be aware of.

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.

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

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.