LTIMindtree (NSE:LTIM) Has A Pretty Healthy Balance Sheet

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, LTIMindtree Limited (NSE:LTIM) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for LTIMindtree

How Much Debt Does LTIMindtree Carry?

As you can see below, LTIMindtree had ₹407.0m of debt at March 2024, down from ₹1.27b a year prior. However, its balance sheet shows it holds ₹95.7b in cash, so it actually has ₹95.3b net cash.

How Strong Is LTIMindtree's Balance Sheet?

The latest balance sheet data shows that LTIMindtree had liabilities of ₹57.4b due within a year, and liabilities of ₹17.9b falling due after that. Offsetting this, it had ₹95.7b in cash and ₹81.8b in receivables that were due within 12 months. So it actually has ₹102.1b more liquid assets than total liabilities.

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

The good news is that LTIMindtree has increased its EBIT by 3.4% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if LTIMindtree can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While LTIMindtree 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 three years, LTIMindtree produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case LTIMindtree has ₹95.3b in net cash and a decent-looking balance sheet. So we don't think LTIMindtree's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with LTIMindtree .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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