Here's Why Megasoft (NSE:MEGASOFT) Can Afford Some Debt

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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.' 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 Megasoft Limited (NSE:MEGASOFT) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Megasoft's Debt?

You can click the graphic below for the historical numbers, but it shows that Megasoft had ₹1.37b of debt in March 2025, down from ₹1.45b, one year before. However, it also had ₹95.5m in cash, and so its net debt is ₹1.27b.

How Strong Is Megasoft's Balance Sheet?

The latest balance sheet data shows that Megasoft had liabilities of ₹683.1m due within a year, and liabilities of ₹1.52b falling due after that. On the other hand, it had cash of ₹95.5m and ₹150.0m worth of receivables due within a year. So it has liabilities totalling ₹1.96b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Megasoft is worth ₹8.71b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Megasoft's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for Megasoft

Given it has no significant operating revenue at the moment, shareholders will be hoping Megasoft can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Megasoft had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹149m. 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. We would feel better if it turned its trailing twelve month loss of ₹299m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Megasoft (2 are a bit unpleasant) you should be aware of.

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.