These 4 Measures Indicate That Trident Techlabs (NSE:TECHLABS) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Trident Techlabs Limited (NSE:TECHLABS) does carry debt. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Trident Techlabs

What Is Trident Techlabs's Net Debt?

As you can see below, Trident Techlabs had ₹192.8m of debt at March 2024, down from ₹230.0m a year prior. But on the other hand it also has ₹231.8m in cash, leading to a ₹38.9m net cash position.

A Look At Trident Techlabs' Liabilities

The latest balance sheet data shows that Trident Techlabs had liabilities of ₹386.1m due within a year, and liabilities of ₹136.6m falling due after that. Offsetting this, it had ₹231.8m in cash and ₹629.5m in receivables that were due within 12 months. So it can boast ₹338.5m more liquid assets than total liabilities.

This surplus suggests that Trident Techlabs has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Trident Techlabs boasts net cash, so it's fair to say it does not have a heavy debt load!

It is well worth noting that Trident Techlabs's EBIT shot up like bamboo after rain, gaining 68% in the last twelve months. That'll make it easier to manage its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Trident Techlabs will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Trident Techlabs 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 last three years, Trident Techlabs saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Trident Techlabs has net cash of ₹38.9m, as well as more liquid assets than liabilities. And we liked the look of last year's 68% year-on-year EBIT growth. So we are not troubled with Trident Techlabs's debt use. 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. We've identified 2 warning signs with Trident Techlabs (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.