Is DiGiSPICE Technologies (NSE:DIGISPICE) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, DiGiSPICE Technologies Limited (NSE:DIGISPICE) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for DiGiSPICE Technologies

What Is DiGiSPICE Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2022 DiGiSPICE Technologies had debt of ₹540.0m, up from ₹331.6m in one year. However, it does have ₹3.53b in cash offsetting this, leading to net cash of ₹2.99b.

How Strong Is DiGiSPICE Technologies' Balance Sheet?

The latest balance sheet data shows that DiGiSPICE Technologies had liabilities of ₹4.39b due within a year, and liabilities of ₹79.6m falling due after that. Offsetting this, it had ₹3.53b in cash and ₹712.1m in receivables that were due within 12 months. So it has liabilities totalling ₹230.8m more than its cash and near-term receivables, combined.

Of course, DiGiSPICE Technologies has a market capitalization of ₹7.81b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 you can't view debt in total isolation; since DiGiSPICE Technologies will need earnings to service that debt. 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.

In the last year DiGiSPICE Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 39%, to ₹9.9b. With any luck the company will be able to grow its way to profitability.

So How Risky Is DiGiSPICE Technologies?

While DiGiSPICE Technologies lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹51m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The good news for DiGiSPICE Technologies shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for DiGiSPICE Technologies you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.