DiGiSPICE Technologies (NSE:DIGISPICE) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, '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 DiGiSPICE Technologies Limited (NSE:DIGISPICE) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

Check out our latest analysis for DiGiSPICE Technologies

How Much Debt Does DiGiSPICE Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 DiGiSPICE Technologies had ₹356.2m of debt, an increase on ₹293.0m, over one year. But on the other hand it also has ₹2.74b in cash, leading to a ₹2.39b net cash position.

How Healthy Is DiGiSPICE Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DiGiSPICE Technologies had liabilities of ₹3.28b due within 12 months and liabilities of ₹75.7m due beyond that. On the other hand, it had cash of ₹2.74b and ₹368.2m worth of receivables due within a year. So it has liabilities totalling ₹239.6m more than its cash and near-term receivables, combined.

Since publicly traded DiGiSPICE Technologies shares are worth a total of ₹9.83b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, DiGiSPICE Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is DiGiSPICE Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, DiGiSPICE Technologies reported revenue of ₹8.4b, which is a gain of 55%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is DiGiSPICE Technologies?

While DiGiSPICE Technologies lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₹791m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that DiGiSPICE Technologies is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. For riskier companies like DiGiSPICE Technologies I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.