Does Hinduja Global Solutions (NSE:HGS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Hinduja Global Solutions Limited (NSE:HGS) does carry debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Hinduja Global Solutions

What Is Hinduja Global Solutions's Debt?

As you can see below, Hinduja Global Solutions had ₹3.08b of debt at March 2022, down from ₹10.8b a year prior. However, its balance sheet shows it holds ₹35.2b in cash, so it actually has ₹32.2b net cash.

How Healthy Is Hinduja Global Solutions' Balance Sheet?

According to the last reported balance sheet, Hinduja Global Solutions had liabilities of ₹16.2b due within 12 months, and liabilities of ₹2.91b due beyond 12 months. On the other hand, it had cash of ₹35.2b and ₹22.3b worth of receivables due within a year. So it actually has ₹38.4b more liquid assets than total liabilities.

This excess liquidity is a great indication that Hinduja Global Solutions' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Hinduja Global Solutions has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Hinduja Global Solutions'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.

Over 12 months, Hinduja Global Solutions made a loss at the EBIT level, and saw its revenue drop to ₹34b, which is a fall of 43%. That makes us nervous, to say the least.

So How Risky Is Hinduja Global Solutions?

Although Hinduja Global Solutions had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹688m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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. To that end, you should learn about the 3 warning signs we've spotted with Hinduja Global Solutions (including 1 which doesn't sit too well with us) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.