Is Genesys International (NSE:GENESYS) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Genesys International Corporation Limited (NSE:GENESYS) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Genesys International

How Much Debt Does Genesys International Carry?

The image below, which you can click on for greater detail, shows that at September 2021 Genesys International had debt of ₹264.9m, up from ₹97.5m in one year. However, it does have ₹191.3m in cash offsetting this, leading to net debt of about ₹73.6m.

How Healthy Is Genesys International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Genesys International had liabilities of ₹588.2m due within 12 months and liabilities of ₹121.4m due beyond that. On the other hand, it had cash of ₹191.3m and ₹467.7m worth of receivables due within a year. So its liabilities total ₹50.6m more than the combination of its cash and short-term receivables.

Having regard to Genesys International's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹10.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Genesys International has a very light debt load indeed. 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 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.

In the last year Genesys International wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to ₹996m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Genesys International's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₹4.3m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₹34m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Genesys International has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.