KPIT Technologies (NSE:KPITTECH) Could Easily Take On More Debt

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The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that KPIT Technologies Limited (NSE:KPITTECH) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is KPIT Technologies's Net Debt?

As you can see below, at the end of March 2025, KPIT Technologies had ₹3.45b of debt, up from ₹3.29b a year ago. Click the image for more detail. But it also has ₹15.7b in cash to offset that, meaning it has ₹12.3b net cash.

How Healthy Is KPIT Technologies' Balance Sheet?

According to the last reported balance sheet, KPIT Technologies had liabilities of ₹17.2b due within 12 months, and liabilities of ₹3.99b due beyond 12 months. On the other hand, it had cash of ₹15.7b and ₹9.52b worth of receivables due within a year. So it can boast ₹4.03b more liquid assets than total liabilities.

This state of affairs indicates that KPIT Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹329.8b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that KPIT Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for KPIT Technologies

Also positive, KPIT Technologies grew its EBIT by 20% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine KPIT Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. KPIT Technologies 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. Over the last three years, KPIT Technologies actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case KPIT Technologies has ₹12.3b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹13b, being 109% of its EBIT. So we don't think KPIT Technologies's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for KPIT Technologies 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.