These 4 Measures Indicate That Accelya Solutions India (NSE:ACCELYA) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Accelya Solutions India Limited (NSE:ACCELYA) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Accelya Solutions India

What Is Accelya Solutions India's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Accelya Solutions India had ₹249.6m of debt in June 2022, down from ₹388.5m, one year before. However, it does have ₹1.14b in cash offsetting this, leading to net cash of ₹890.6m.

A Look At Accelya Solutions India's Liabilities

We can see from the most recent balance sheet that Accelya Solutions India had liabilities of ₹728.7m falling due within a year, and liabilities of ₹194.4m due beyond that. Offsetting this, it had ₹1.14b in cash and ₹1.03b in receivables that were due within 12 months. So it can boast ₹1.25b more liquid assets than total liabilities.

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

In addition to that, we're happy to report that Accelya Solutions India has boosted its EBIT by 83%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is Accelya Solutions India'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Accelya Solutions 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, Accelya Solutions India recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Accelya Solutions India has ₹890.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 94% of that EBIT to free cash flow, bringing in ₹1.0b. So we don't think Accelya Solutions India's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Accelya Solutions India , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.