Is New Delhi Television (NSE:NDTV) Using Too Much Debt?

Warren Buffett famously said, '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 New Delhi Television Limited (NSE:NDTV) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for New Delhi Television

What Is New Delhi Television's Net Debt?

As you can see below, New Delhi Television had ₹218.3m of debt at March 2022, down from ₹682.7m a year prior. But on the other hand it also has ₹1.16b in cash, leading to a ₹939.9m net cash position.

How Healthy Is New Delhi Television's Balance Sheet?

The latest balance sheet data shows that New Delhi Television had liabilities of ₹2.03b due within a year, and liabilities of ₹195.6m falling due after that. On the other hand, it had cash of ₹1.16b and ₹1.08b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that New Delhi Television's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹21.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that New Delhi Television 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 New Delhi Television has boosted its EBIT by 53%, 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 New Delhi Television's earnings that will influence how the balance sheet holds up in the future. 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. New Delhi Television 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, New Delhi Television recorded free cash flow worth a fulsome 95% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case New Delhi Television has ₹939.9m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹1.5b, being 95% of its EBIT. So is New Delhi Television's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - New Delhi Television has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.