These 4 Measures Indicate That New Delhi Television (NSE:NDTV) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that New Delhi Television Limited (NSE:NDTV) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for New Delhi Television

What Is New Delhi Television's Debt?

You can click the graphic below for the historical numbers, but it shows that New Delhi Television had ₹190.5m of debt in September 2022, down from ₹517.9m, one year before. But on the other hand it also has ₹1.29b in cash, leading to a ₹1.10b net cash position.

How Healthy Is New Delhi Television's Balance Sheet?

According to the last reported balance sheet, New Delhi Television had liabilities of ₹1.93b due within 12 months, and liabilities of ₹176.5m due beyond 12 months. Offsetting this, it had ₹1.29b in cash and ₹1.09b in receivables that were due within 12 months. So it can boast ₹280.7m more liquid assets than 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 ₹15.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, New Delhi Television boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, New Delhi Television grew its EBIT by 65% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since New Delhi Television will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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. Happily for any shareholders, New Delhi Television actually produced more free cash flow than EBIT over the last three years. 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 New Delhi Television has ₹1.10b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹1.3b, being 110% of its EBIT. So we don't think New Delhi Television's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - New Delhi Television has 2 warning signs we think you should be aware of.

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.