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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. 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 Endurance Technologies Limited (NSE:ENDURANCE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Endurance Technologies
What Is Endurance Technologies's Debt?
As you can see below, Endurance Technologies had ₹6.90b of debt at March 2019, down from ₹8.14b a year prior. However, it also had ₹5.73b in cash, and so its net debt is ₹1.17b.
A Look At Endurance Technologies's Liabilities
The latest balance sheet data shows that Endurance Technologies had liabilities of ₹17.8b due within a year, and liabilities of ₹4.37b falling due after that. Offsetting these obligations, it had cash of ₹5.73b as well as receivables valued at ₹9.66b due within 12 months. So it has liabilities totalling ₹6.82b more than its cash and near-term receivables, combined.
Since publicly traded Endurance Technologies shares are worth a total of ₹140.2b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Endurance Technologies has virtually no net debt, so it's fair to say it does not have a heavy debt load!
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.