We Think Tata Technologies (NSE:TATATECH) Can Stay On Top Of Its Debt

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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.' 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 Tata Technologies Limited (NSE:TATATECH) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Tata Technologies's Debt?

The image below, which you can click on for greater detail, shows that Tata Technologies had debt of ₹2.37b at the end of March 2025, a reduction from ₹2.57b over a year. But it also has ₹14.8b in cash to offset that, meaning it has ₹12.4b net cash.

How Strong Is Tata Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tata Technologies had liabilities of ₹26.8b due within 12 months and liabilities of ₹4.02b due beyond that. Offsetting this, it had ₹14.8b in cash and ₹26.9b in receivables that were due within 12 months. So it can boast ₹10.9b more liquid assets than total liabilities.

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

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But the other side of the story is that Tata Technologies saw its EBIT decline by 3.7% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Tata Technologies's ability to maintain a healthy balance sheet going forward. 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. Tata Technologies 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. During the last three years, Tata Technologies produced sturdy free cash flow equating to 56% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Tata Technologies has ₹12.4b in net cash and a decent-looking balance sheet. So we are not troubled with Tata Technologies's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Tata Technologies, you may well want to click here to check an interactive graph of its earnings per share history.

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.