Does Novus Holdings (JSE:NVS) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Novus Holdings Limited (JSE:NVS) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Novus Holdings's Debt?

As you can see below, at the end of September 2025, Novus Holdings had R547.8m of debt, up from R488.4m a year ago. Click the image for more detail. But it also has R774.8m in cash to offset that, meaning it has R227.0m net cash.

How Healthy Is Novus Holdings' Balance Sheet?

The latest balance sheet data shows that Novus Holdings had liabilities of R1.32b due within a year, and liabilities of R298.7m falling due after that. On the other hand, it had cash of R774.8m and R996.0m worth of receivables due within a year. So it can boast R156.6m more liquid assets than total liabilities.

This surplus suggests that Novus Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Novus Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Novus Holdings

It is just as well that Novus Holdings's load is not too heavy, because its EBIT was down 49% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Novus Holdings 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Novus 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. Happily for any shareholders, Novus Holdings actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Novus Holdings has R227.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of R899m, being 184% of its EBIT. So we are not troubled with Novus Holdings's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Novus Holdings that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.