Does DiGiSPICE Technologies (NSE:DIGISPICE) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies DiGiSPICE Technologies Limited (NSE:DIGISPICE) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for DiGiSPICE Technologies

How Much Debt Does DiGiSPICE Technologies Carry?

The image below, which you can click on for greater detail, shows that DiGiSPICE Technologies had debt of ₹293.0m at the end of September 2020, a reduction from ₹539.1m over a year. However, it does have ₹2.11b in cash offsetting this, leading to net cash of ₹1.82b.

How Strong Is DiGiSPICE Technologies' Balance Sheet?

The latest balance sheet data shows that DiGiSPICE Technologies had liabilities of ₹2.33b due within a year, and liabilities of ₹90.1m falling due after that. Offsetting these obligations, it had cash of ₹2.11b as well as receivables valued at ₹438.6m due within 12 months. So it actually has ₹128.9m more liquid assets than total liabilities.

Having regard to DiGiSPICE Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹13.4b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, DiGiSPICE Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year DiGiSPICE Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 52%, to ₹6.3b. 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 ₹1.0b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 52% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that DiGiSPICE Technologies is showing 2 warning signs in our investment analysis , you should know about...

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. 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.
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