Is Subex (NSE:SUBEXLTD) A Risky Investment?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Subex Limited (NSE:SUBEXLTD) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Subex's Debt?

You can click the graphic below for the historical numbers, but it shows that Subex had ₹193.8m of debt in March 2025, down from ₹281.6m, one year before. But it also has ₹938.4m in cash to offset that, meaning it has ₹744.6m net cash.

A Look At Subex's Liabilities

Zooming in on the latest balance sheet data, we can see that Subex had liabilities of ₹1.01b due within 12 months and liabilities of ₹814.2m due beyond that. Offsetting this, it had ₹938.4m in cash and ₹803.7m in receivables that were due within 12 months. So it has liabilities totalling ₹82.7m more than its cash and near-term receivables, combined.

Having regard to Subex's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹7.69b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Subex also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Subex'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.

See our latest analysis for Subex

In the last year Subex had a loss before interest and tax, and actually shrunk its revenue by 8.6%, to ₹2.8b. That's not what we would hope to see.

So How Risky Is Subex?

Although Subex had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₹73m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 Subex has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.