Is Saksoft (NSE:SAKSOFT) A Risky Investment?

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 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 note that Saksoft Limited (NSE:SAKSOFT) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Saksoft's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Saksoft had ₹542.8m of debt, an increase on ₹83.5m, over one year. However, it does have ₹1.97b in cash offsetting this, leading to net cash of ₹1.43b.

How Healthy Is Saksoft's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Saksoft had liabilities of ₹2.68b due within 12 months and liabilities of ₹1.06b due beyond that. Offsetting these obligations, it had cash of ₹1.97b as well as receivables valued at ₹1.99b due within 12 months. So it actually has ₹228.2m more liquid assets than total liabilities.

Having regard to Saksoft's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₹28.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Saksoft boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Saksoft

The good news is that Saksoft has increased its EBIT by 7.1% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Saksoft will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Saksoft 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. Over the last three years, Saksoft recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Saksoft has net cash of ₹1.43b, as well as more liquid assets than liabilities. The cherry on top was that in converted 84% of that EBIT to free cash flow, bringing in ₹1.1b. So we don't think Saksoft's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Saksoft .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.