Is Tata Elxsi (NSE:TATAELXSI) Using Too Much 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.' 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 note that Tata Elxsi Limited (NSE:TATAELXSI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Tata Elxsi Carry?

The image below, which you can click on for greater detail, shows that Tata Elxsi had debt of ₹1.92b at the end of March 2025, a reduction from ₹2.24b over a year. However, its balance sheet shows it holds ₹15.9b in cash, so it actually has ₹14.0b net cash.

How Healthy Is Tata Elxsi's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tata Elxsi had liabilities of ₹5.30b due within 12 months and liabilities of ₹1.96b due beyond that. Offsetting this, it had ₹15.9b in cash and ₹11.1b in receivables that were due within 12 months. So it actually has ₹19.7b more liquid assets than total liabilities.

This surplus suggests that Tata Elxsi has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Tata Elxsi has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Tata Elxsi

On the other hand, Tata Elxsi's EBIT dived 12%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Tata Elxsi 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Tata Elxsi may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Tata Elxsi recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 Tata Elxsi has net cash of ₹14.0b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹8.0b, being 71% of its EBIT. So we don't have any problem with Tata Elxsi's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Tata Elxsi's earnings per share history for free.

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.