We Think Cerebra Integrated Technologies (NSE:CEREBRAINT) Has A Fair Chunk Of 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.' 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. Importantly, Cerebra Integrated Technologies Limited (NSE:CEREBRAINT) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Cerebra Integrated Technologies

What Is Cerebra Integrated Technologies's Debt?

As you can see below, Cerebra Integrated Technologies had ₹401.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₹9.60m in cash, and so its net debt is ₹391.4m.

How Healthy Is Cerebra Integrated Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Cerebra Integrated Technologies had liabilities of ₹1.42b due within 12 months and liabilities of ₹6.93m due beyond 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 ₹1.06b, 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.

In the last year Cerebra Integrated Technologies had a loss before interest and tax, and actually shrunk its revenue by 3.1%, to ₹495m. 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 ₹355m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₹551m. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Cerebra Integrated Technologies (1 is significant!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.