Li Lu, an external fund manager backed by Charlie Munger of Berkshire Hathaway, said bluntly: “The biggest investment risk is not the price fluctuation, but whether you will suffer permanent capital loss.” Therefore, When you consider how risky any given stock is, it may be obvious that you need to consider debt, since too much debt can bring a company out of business. important, cambridge technology enterprise co., ltd. (NSE:CTE) does have debt. But is that debt a concern for shareholders?
When does debt become a problem?
Debt and other liabilities become risky for businesses when they cannot easily meet these obligations through free cash flow or by raising funds at attractive prices. In a worst-case scenario, a company can go bankrupt if it can’t pay its creditors. While this is less common, we do often see indebted companies permanently diluting shareholders as lenders force them to raise capital cheaply. Of course, many companies have used debt to finance growth without any negative consequences. When considering a company’s debt levels, the first step is to consider both its cash and its debt.
Check out our latest analysis for Cambridge Tech businesses
How Much Debt Are Cambridge Tech Companies Carrying On?
As the chart below shows, Cambridge Technology Enterprises’ debt stood at Rs 434.5 crore as at end-September 2022, up from Rs 141.1 crore a year ago. Click image for more details. But it also has cash of Rs 521 crore to offset this, which means it has net cash of Rs 86.6 crore.
Liabilities of Cambridge Technology Enterprises at a Glance
Based on the latest reported balance sheet, Cambridge Tech Enterprises has liabilities due within 12 months of Rs 303.4 crore and liabilities due in 12 months of Rs 315.2 crore. As an offset, it has cash of Rs 521 crore and receivables of Rs 351.4 crore due within 12 months.So it actually has 253.9 crores tomorrow Current assets are greater than total liabilities.
This excess liquidity suggests that Cambridge Technology Enterprises is taking a cautious approach to debt. Given its easily abundant short-term liquidity, we don’t think it will have any problems with lenders. In short, the fact that Cambridge Technology Enterprises has more cash than debt is arguably a good sign that it can safely manage its debt.
Even better, Cambridge Technology Enterprises’ earnings before interest and taxes rose 364% last year, an impressive improvement. This boost will make it easier to pay down debt in the future. The balance sheet is an obvious area to focus on when you analyze debt. But you can’t look at debt in complete isolation; because Cambridge Technology Enterprises needs to be profitable to service its debt. So if you want to learn more about its earnings, it might be worth checking out this long-term earnings trend chart.
But our last consideration is also important because a company cannot use paper profits to pay its debts; it needs cold hard cash. Although Cambridge Technology Enterprises has net cash on its balance sheet, it’s worth looking at its ability to convert earnings before interest and taxes (EBIT) into free cash flow to help us understand how quickly it can build (or erode) cash flow. How fast cash balance. Over the past three years, Cambridge Tech has burned through a lot of cash. While investors no doubt expect this to reverse in due course, it clearly means that its use of debt is riskier.
While it is always wise to look into a company’s debt, in this case Cambridge Technology Enterprises has net cash of Rs 86.6 crore and a decent balance sheet. We like the 364% year-over-year EBIT growth last year. So is Cambridge Tech’s debt at risk? Not so in our opinion. Without a doubt, the debt we know the most from the balance sheet. However, not all investment risk resides on the balance sheet — far from it.Case in point: we found 3 warning signs for Cambridge tech businesses You should know that 2 of them are important.
At the end of the day, sometimes it’s easier to focus on companies that don’t even need debt.Readers can access a list of growth stocks with zero net debt 100% freeNow.
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.