Does SecureKloud Technologies (NSE:SECURKLOUD) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that SecureKloud Technologies Limited (NSE:SECURKLOUD) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

Check out our latest analysis for SecureKloud Technologies

How Much Debt Does SecureKloud Technologies Carry?

As you can see below, at the end of September 2023, SecureKloud Technologies had ₹1.19b of debt, up from ₹1.05b a year ago. Click the image for more detail. Net debt is about the same, since the it doesn't have much cash.

How Strong Is SecureKloud Technologies' Balance Sheet?

We can see from the most recent balance sheet that SecureKloud Technologies had liabilities of ₹1.82b falling due within a year, and liabilities of ₹410.9m due beyond that. On the other hand, it had cash of ₹20.0m and ₹535.5m worth of receivables due within a year. So it has liabilities totalling ₹1.68b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of ₹1.55b, we think shareholders really should watch SecureKloud Technologies's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is SecureKloud Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year SecureKloud Technologies had a loss before interest and tax, and actually shrunk its revenue by 2.6%, to ₹4.2b. We would much prefer see growth.

Caveat Emptor

Importantly, SecureKloud Technologies had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₹762m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through ₹206m in negative free cash flow over the last year. That means it's on the risky side of things. 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. For example SecureKloud Technologies has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.