Aditya Infotech (NSE:CPPLUS) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Aditya Infotech Limited (NSE:CPPLUS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Aditya Infotech Carry?

The image below, which you can click on for greater detail, shows that Aditya Infotech had debt of ₹678.2m at the end of September 2025, a reduction from ₹5.55b over a year. However, it does have ₹2.37b in cash offsetting this, leading to net cash of ₹1.69b.

A Look At Aditya Infotech's Liabilities

The latest balance sheet data shows that Aditya Infotech had liabilities of ₹16.9b due within a year, and liabilities of ₹1.01b falling due after that. Offsetting these obligations, it had cash of ₹2.37b as well as receivables valued at ₹10.5b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹4.96b.

Since publicly traded Aditya Infotech shares are worth a total of ₹176.6b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Aditya Infotech boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Aditya Infotech

On top of that, Aditya Infotech grew its EBIT by 39% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Aditya Infotech's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Aditya Infotech 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. Over the last three years, Aditya Infotech saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

We could understand if investors are concerned about Aditya Infotech's liabilities, but we can be reassured by the fact it has has net cash of ₹1.69b. And we liked the look of last year's 39% year-on-year EBIT growth. So we are not troubled with Aditya Infotech's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Aditya Infotech's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.