CarTrade Tech (NSE:CARTRADE) Could Easily Take On More 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 CarTrade Tech Limited (NSE:CARTRADE) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does CarTrade Tech Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 CarTrade Tech had ₹1.31b of debt, an increase on ₹1.12b, over one year. However, its balance sheet shows it holds ₹6.83b in cash, so it actually has ₹5.52b net cash.

A Look At CarTrade Tech's Liabilities

According to the last reported balance sheet, CarTrade Tech had liabilities of ₹2.53b due within 12 months, and liabilities of ₹1.25b due beyond 12 months. Offsetting this, it had ₹6.83b in cash and ₹1.31b in receivables that were due within 12 months. So it can boast ₹4.35b more liquid assets than total liabilities.

This surplus suggests that CarTrade Tech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CarTrade Tech boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for CarTrade Tech

Better yet, CarTrade Tech grew its EBIT by 134% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 CarTrade Tech'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. CarTrade Tech 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, CarTrade Tech 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 we empathize with investors who find debt concerning, you should keep in mind that CarTrade Tech has net cash of ₹5.52b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹1.7b, being 125% of its EBIT. So we don't think CarTrade Tech'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 instance, we've identified 1 warning sign for CarTrade Tech that 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.

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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.