Does Cerebra Integrated Technologies (NSE:CEREBRAINT) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Cerebra Integrated Technologies Limited (NSE:CEREBRAINT) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Cerebra Integrated Technologies

What Is Cerebra Integrated Technologies's Debt?

The chart below, which you can click on for greater detail, shows that Cerebra Integrated Technologies had ₹401.0m in debt in September 2024; about the same as the year before. However, because it has a cash reserve of ₹9.60m, its net debt is less, at about ₹391.4m.

How Healthy Is Cerebra Integrated Technologies' Balance Sheet?

The latest balance sheet data shows that Cerebra Integrated Technologies had liabilities of ₹1.42b due within a year, and liabilities of ₹6.93m falling due after that. Offsetting these obligations, it had cash of ₹9.60m as well as receivables valued at ₹1.20b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹215.6m.

Cerebra Integrated Technologies has a market capitalization of ₹546.5m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Cerebra Integrated Technologies 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.

Over 12 months, Cerebra Integrated Technologies made a loss at the EBIT level, and saw its revenue drop to ₹483m, which is a fall of 3.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Cerebra Integrated Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable ₹352m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of ₹336m into a profit. So to be blunt we do think it is risky. 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 - Cerebra Integrated Technologies has 2 warning signs we think you should be aware of.

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.