We Think Mphasis (NSE:MPHASIS) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Mphasis Limited (NSE:MPHASIS) 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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Mphasis Carry?

You can click the graphic below for the historical numbers, but it shows that Mphasis had ₹11.2b of debt in March 2025, down from ₹15.4b, one year before. But it also has ₹34.0b in cash to offset that, meaning it has ₹22.8b net cash.

How Healthy Is Mphasis' Balance Sheet?

According to the last reported balance sheet, Mphasis had liabilities of ₹44.5b due within 12 months, and liabilities of ₹8.30b due beyond 12 months. On the other hand, it had cash of ₹34.0b and ₹28.8b worth of receivables due within a year. So it actually has ₹9.98b more liquid assets than total liabilities.

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

Check out our latest analysis for Mphasis

And we also note warmly that Mphasis grew its EBIT by 17% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Mphasis's ability to maintain a healthy balance sheet going forward. 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. While Mphasis 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, Mphasis generated free cash flow amounting to a very robust 86% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Mphasis has net cash of ₹22.8b, as well as more liquid assets than liabilities. The cherry on top was that in converted 86% of that EBIT to free cash flow, bringing in ₹18b. So we don't think Mphasis's use of debt is risky. 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. For example - Mphasis has 1 warning sign we think you should be aware of.

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.