We Think Zensar Technologies (NSE:ZENSARTECH) Can Manage Its Debt With Ease

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Zensar Technologies Limited (NSE:ZENSARTECH) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Zensar Technologies's Debt?

As you can see below, Zensar Technologies had ₹1.25b of debt at March 2025, down from ₹1.87b a year prior. But it also has ₹19.9b in cash to offset that, meaning it has ₹18.7b net cash.

How Healthy Is Zensar Technologies' Balance Sheet?

We can see from the most recent balance sheet that Zensar Technologies had liabilities of ₹8.82b falling due within a year, and liabilities of ₹2.21b due beyond that. On the other hand, it had cash of ₹19.9b and ₹12.4b worth of receivables due within a year. So it actually has ₹21.3b more liquid assets than total liabilities.

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

See our latest analysis for Zensar Technologies

The good news is that Zensar Technologies has increased its EBIT by 2.3% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Zensar 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, a company can only pay off debt with cold hard cash, not accounting profits. While Zensar Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Zensar Technologies recorded free cash flow worth a fulsome 91% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Zensar Technologies has ₹18.7b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 91% of that EBIT to free cash flow, bringing in ₹5.3b. So we don't think Zensar Technologies's use of debt is risky. We'd be very excited to see if Zensar Technologies insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.