Howard Marks put it nicely when he stated that, rather than worrying about share price volatility, ‘The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.’ So it might be obvious that you necessary to consider debt, when you consider about how risky any given stock is, becautilize too much debt can sink a company. We note that Sahasra Electronic Solutions Limited (NSE:SAHASRA) does have debt on its balance sheet. But should shareholders be worried about its utilize of debt?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to obtain debt under control. Having stated that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we consider about a company’s utilize of debt, we first see at cash and debt toobtainher.
How Much Debt Does Sahasra Electronic Solutions Carry?
As you can see below, at the finish of September 2025, Sahasra Electronic Solutions had ₹564.8m of debt, up from ₹517.4m a year ago. Click the image for more detail. However, it does have ₹16.3m in cash offsetting this, leading to net debt of about ₹548.5m.
How Strong Is Sahasra Electronic Solutions’ Balance Sheet?
According to the last reported balance sheet, Sahasra Electronic Solutions had liabilities of ₹594.8m due within 12 months, and liabilities of ₹338.5m due beyond 12 months. Offsetting this, it had ₹16.3m in cash and ₹376.6m in receivables that were due within 12 months. So its liabilities total ₹540.4m more than the combination of its cash and short-term receivables.
Of course, Sahasra Electronic Solutions has a market capitalization of ₹6.15b, so these liabilities are probably manageable. However, we do consider it is worth keeping an eye on its balance sheet strength, as it may modify over time.
Check out our latest analysis for Sahasra Electronic Solutions
We measure a company’s debt load relative to its earnings power by seeing at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
While we wouldn’t worry about Sahasra Electronic Solutions’s net debt to EBITDA ratio of 3.4, we consider its super-low interest cover of 1.6 times is a sign of high leverage. So shareholders should probably be aware that interest expenses appear to have really impacted the business lately. Even worse, Sahasra Electronic Solutions saw its EBIT tank 56% over the last 12 months. If earnings keep going like that over the long term, it has a snowball’s chance in hell of paying off that debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Sahasra Electronic Solutions’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth seeing at the earnings trfinish. Click here for an interactive snapshot.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So it’s worth checking how much of that EBIT is backed by free cash flow. During the last three years, Sahasra Electronic Solutions burned a lot of cash. While that may be a result of expfinishiture for growth, it does create the debt far more risky.
Our View
To be frank both Sahasra Electronic Solutions’s conversion of EBIT to free cash flow and its track record of (not) growing its EBIT create us rather uncomfortable with its debt levels. But at least it’s pretty decent at staying on top of its total liabilities; that’s encouraging. We’re quite clear that we consider Sahasra Electronic Solutions to be really rather risky, as a result of its balance sheet health. For this reason we’re pretty cautious about the stock, and we consider shareholders should keep a close eye on its liquidity. 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 example Sahasra Electronic Solutions has 4 warning signs (and 2 which create us uncomfortable) we consider you should know about.
At the finish of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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