Is Sahasra Electronic Solutions (NSE:SAHASRA) A Risky Investment?

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.' 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. As with many other companies Sahasra Electronic Solutions Limited (NSE:SAHASRA) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Sahasra Electronic Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Sahasra Electronic Solutions had debt of ₹517.4m, up from ₹217.2m in one year. But on the other hand it also has ₹787.7m in cash, leading to a ₹270.4m net cash position.

A Look At Sahasra Electronic Solutions' Liabilities

The latest balance sheet data shows that Sahasra Electronic Solutions had liabilities of ₹579.1m due within a year, and liabilities of ₹388.2m falling due after that. Offsetting these obligations, it had cash of ₹787.7m as well as receivables valued at ₹377.4m due within 12 months. So it actually has ₹197.8m more liquid assets than total liabilities.

This surplus suggests that Sahasra Electronic Solutions has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Sahasra Electronic Solutions has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Sahasra Electronic Solutions

Shareholders should be aware that Sahasra Electronic Solutions's EBIT was down 83% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sahasra Electronic Solutions 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Sahasra Electronic Solutions 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. During the last three years, Sahasra Electronic Solutions burned a lot of cash. 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 it is always sensible to investigate a company's debt, in this case Sahasra Electronic Solutions has ₹270.4m in net cash and a decent-looking balance sheet. Despite its cash we think that Sahasra Electronic Solutions seems to struggle to grow its EBIT, so we are wary of the stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Sahasra Electronic Solutions (of which 3 are a bit unpleasant!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.