We Think NetSol Technologies (NASDAQ:NTWK) Can Manage Its Debt With Ease

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. We note that NetSol Technologies, Inc. (NASDAQ:NTWK) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is NetSol Technologies's Debt?

As you can see below, at the end of March 2025, NetSol Technologies had US$8.43m of debt, up from US$5.92m a year ago. Click the image for more detail. But on the other hand it also has US$18.8m in cash, leading to a US$10.3m net cash position.

How Healthy Is NetSol Technologies' Balance Sheet?

The latest balance sheet data shows that NetSol Technologies had liabilities of US$18.7m due within a year, and liabilities of US$509.2k falling due after that. Offsetting these obligations, it had cash of US$18.8m as well as receivables valued at US$20.6m due within 12 months. So it can boast US$20.2m more liquid assets than total liabilities.

This surplus strongly suggests that NetSol Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that NetSol Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for NetSol Technologies

Although NetSol Technologies made a loss at the EBIT level, last year, it was also good to see that it generated US$1.1m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since NetSol Technologies will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. NetSol Technologies 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. Over the last year, NetSol Technologies actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case NetSol Technologies has US$10.3m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 548% of that EBIT to free cash flow, bringing in US$6.1m. So is NetSol Technologies's debt a risk? It doesn't seem so to us. 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. To that end, you should be aware of the 1 warning sign we've spotted with NetSol Technologies .

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.