Genesys International (NSE:GENESYS) Has A Pretty Healthy Balance Sheet

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.' 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. We note that Genesys International Corporation Limited (NSE:GENESYS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Genesys International

What Is Genesys International's Debt?

You can click the graphic below for the historical numbers, but it shows that Genesys International had ₹157.3m of debt in September 2022, down from ₹264.9m, one year before. But it also has ₹936.5m in cash to offset that, meaning it has ₹779.2m net cash.

How Healthy Is Genesys International's Balance Sheet?

The latest balance sheet data shows that Genesys International had liabilities of ₹691.8m due within a year, and liabilities of ₹185.1m falling due after that. Offsetting this, it had ₹936.5m in cash and ₹646.7m in receivables that were due within 12 months. So it can boast ₹706.2m more liquid assets than total liabilities.

This surplus suggests that Genesys International has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Genesys International boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Genesys International made a loss at the EBIT level, last year, it was also good to see that it generated ₹197m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Genesys International 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Genesys International 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 year, Genesys International burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Genesys International has ₹779.2m in net cash and a decent-looking balance sheet. So we don't have any problem with Genesys International's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Genesys International is showing 3 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

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.