Nazara Technologies (NSE:NAZARA) Has A Somewhat Strained Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Nazara Technologies Limited (NSE:NAZARA) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Nazara Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Nazara Technologies had ₹1.41b of debt, an increase on ₹92.8m, over one year. However, it does have ₹6.53b in cash offsetting this, leading to net cash of ₹5.11b.

A Look At Nazara Technologies' Liabilities

We can see from the most recent balance sheet that Nazara Technologies had liabilities of ₹9.37b falling due within a year, and liabilities of ₹2.61b due beyond that. Offsetting this, it had ₹6.53b in cash and ₹6.08b in receivables that were due within 12 months. So it can boast ₹623.4m more liquid assets than total liabilities.

Having regard to Nazara Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹127.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Nazara Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Nazara Technologies

Importantly, Nazara Technologies's EBIT fell a jaw-dropping 36% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Nazara Technologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Nazara Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Nazara Technologies recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Nazara Technologies has ₹5.11b in net cash and a decent-looking balance sheet. So while Nazara Technologies does not have a great balance sheet, it's certainly not too bad. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Nazara Technologies .

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.