Does WNS (Holdings) (NYSE:WNS) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We note that WNS (Holdings) Limited (NYSE:WNS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is WNS (Holdings)'s Debt?

As you can see below, at the end of March 2025, WNS (Holdings) had US$243.5m of debt, up from US$179.2m a year ago. Click the image for more detail. But it also has US$263.8m in cash to offset that, meaning it has US$20.3m net cash.

A Look At WNS (Holdings)'s Liabilities

According to the last reported balance sheet, WNS (Holdings) had liabilities of US$321.0m due within 12 months, and liabilities of US$388.8m due beyond 12 months. Offsetting these obligations, it had cash of US$263.8m as well as receivables valued at US$252.9m due within 12 months. So it has liabilities totalling US$193.1m more than its cash and near-term receivables, combined.

Of course, WNS (Holdings) has a market capitalization of US$2.61b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, WNS (Holdings) boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for WNS (Holdings)

But the other side of the story is that WNS (Holdings) saw its EBIT decline by 5.4% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if WNS (Holdings) can strengthen its balance sheet over time. 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 WNS (Holdings) 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, WNS (Holdings) generated free cash flow amounting to a very robust 99% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that WNS (Holdings) has US$20.3m in net cash. The cherry on top was that in converted 99% of that EBIT to free cash flow, bringing in US$197m. So we don't think WNS (Holdings)'s use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of WNS (Holdings)'s earnings per share history for free.

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.