Here's Why Cyient (NSE:CYIENT) Can Manage Its Debt Responsibly

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.' 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. Importantly, Cyient Limited (NSE:CYIENT) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is Cyient's Net Debt?

As you can see below, Cyient had ₹5.15b of debt at March 2025, down from ₹8.09b a year prior. But on the other hand it also has ₹12.4b in cash, leading to a ₹7.22b net cash position.

How Strong Is Cyient's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Cyient had liabilities of ₹13.7b due within 12 months and liabilities of ₹5.64b due beyond that. On the other hand, it had cash of ₹12.4b and ₹18.3b worth of receivables due within a year. So it actually has ₹11.4b more liquid assets than total liabilities.

This short term liquidity is a sign that Cyient could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Cyient boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Cyient

On the other hand, Cyient's EBIT dived 15%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cyient can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Cyient 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. During the last three years, Cyient produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Cyient has ₹7.22b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹6.9b, being 68% of its EBIT. So we don't have any problem with Cyient's use of debt. 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 1 warning sign we've spotted with Cyient .

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.