Newgen Software Technologies (NSE:NEWGEN) Could Easily Take On More Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Newgen Software Technologies Limited (NSE:NEWGEN) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Newgen Software Technologies Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Newgen Software Technologies had debt of ₹534.8m, up from ₹485.1m in one year. But it also has ₹9.24b in cash to offset that, meaning it has ₹8.70b net cash.

A Look At Newgen Software Technologies' Liabilities

We can see from the most recent balance sheet that Newgen Software Technologies had liabilities of ₹4.32b falling due within a year, and liabilities of ₹963.4m due beyond that. Offsetting this, it had ₹9.24b in cash and ₹6.86b in receivables that were due within 12 months. So it can boast ₹10.8b more liquid assets than total liabilities.

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

View our latest analysis for Newgen Software Technologies

Also positive, Newgen Software Technologies grew its EBIT by 24% 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 ultimately the future profitability of the business will decide if Newgen Software Technologies 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 Newgen Software Technologies 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, Newgen Software Technologies produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Newgen Software Technologies has net cash of ₹8.70b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 24% over the last year. So is Newgen Software Technologies's debt a risk? It doesn't seem so to us. 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 1 warning sign we've spotted with Newgen Software Technologies .

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.