Is DiGiSPICE Technologies (NSE:DIGISPICE) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 thing to do when considering how much debt a business uses is to look at its cash and debt 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 DiGiSPICE Technologies had debt of ₹595.1m at the end of September 2024, a reduction from ₹837.1m over a year. However, it does have ₹4.20b in cash offsetting this, leading to net cash of ₹3.61b.

A Look At DiGiSPICE Technologies' Liabilities

We can see from the most recent balance sheet that DiGiSPICE Technologies had liabilities of ₹4.05b falling due within a year, and liabilities of ₹248.5m due beyond that. Offsetting this, it had ₹4.20b in cash and ₹367.8m in receivables that were due within 12 months. So it can boast ₹268.6m more liquid assets than total liabilities.

This surplus suggests that DiGiSPICE Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that DiGiSPICE Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since DiGiSPICE Technologies will need earnings to service that debt. 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 ₹4.3b, which is a gain of 223%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is DiGiSPICE Technologies?

Although DiGiSPICE Technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹426m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Keeping in mind its 223% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. For instance, we've identified 2 warning signs for DiGiSPICE Technologies that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.