Kaynes Technology India (NSE:KAYNES) Has A Pretty Healthy Balance Sheet

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.' 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, Kaynes Technology India Limited (NSE:KAYNES) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Kaynes Technology India

What Is Kaynes Technology India's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Kaynes Technology India had ₹6.83b of debt, an increase on ₹2.59b, over one year. But on the other hand it also has ₹12.1b in cash, leading to a ₹5.29b net cash position.

How Healthy Is Kaynes Technology India's Balance Sheet?

According to the last reported balance sheet, Kaynes Technology India had liabilities of ₹11.2b due within 12 months, and liabilities of ₹756.5m due beyond 12 months. Offsetting these obligations, it had cash of ₹12.1b as well as receivables valued at ₹5.94b due within 12 months. So it can boast ₹6.11b more liquid assets than total liabilities.

Having regard to Kaynes Technology India's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹420.6b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Kaynes Technology India boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Kaynes Technology India has boosted its EBIT by 69%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kaynes Technology India can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Kaynes Technology India 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, Kaynes Technology India burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Kaynes Technology India has ₹5.29b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 69% over the last year. So we don't have any problem with Kaynes Technology India's use of debt. 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. Be aware that Kaynes Technology India is showing 1 warning sign in our investment analysis , you should know about...

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.