Intellect Design Arena (NSE:INTELLECT) Seems To Use Debt Quite Sensibly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Intellect Design Arena Limited (NSE:INTELLECT) does have debt on its balance sheet. But is this debt a concern to shareholders?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Intellect Design Arena's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Intellect Design Arena had ₹717.8m of debt, an increase on ₹443.0m, over one year. However, it does have ₹5.31b in cash offsetting this, leading to net cash of ₹4.59b.

How Healthy Is Intellect Design Arena's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Intellect Design Arena had liabilities of ₹9.51b due within 12 months and liabilities of ₹1.15b due beyond that. Offsetting this, it had ₹5.31b in cash and ₹13.6b in receivables that were due within 12 months. So it actually has ₹8.22b more liquid assets than total liabilities.

This short term liquidity is a sign that Intellect Design Arena could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Intellect Design Arena has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Intellect Design Arena

Fortunately, Intellect Design Arena grew its EBIT by 2.7% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Intellect Design Arena can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Intellect Design Arena may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Intellect Design Arena recorded free cash flow of 48% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Intellect Design Arena has net cash of ₹4.59b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 2.7% in the last twelve months. So we are not troubled with Intellect Design Arena's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Intellect Design Arena's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.