Here's Why TVS Electronics (NSE:TVSELECT) Can Afford Some Debt
Howard Marks put it nicely when he said 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.' 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. As with many other companies TVS Electronics Limited (NSE:TVSELECT) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
What Is TVS Electronics's Net Debt?
The image below, which you can click on for greater detail, shows that at September 2025 TVS Electronics had debt of ₹483.2m, up from ₹289.1m in one year. However, because it has a cash reserve of ₹102.7m, its net debt is less, at about ₹380.5m.
How Strong Is TVS Electronics' Balance Sheet?
According to the last reported balance sheet, TVS Electronics had liabilities of ₹1.69b due within 12 months, and liabilities of ₹156.1m due beyond 12 months. Offsetting these obligations, it had cash of ₹102.7m as well as receivables valued at ₹793.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹946.5m.
Since publicly traded TVS Electronics shares are worth a total of ₹6.92b, 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TVS Electronics will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
View our latest analysis for TVS Electronics
In the last year TVS Electronics wasn't profitable at an EBIT level, but managed to grow its revenue by 9.7%, to ₹4.4b. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Over the last twelve months TVS Electronics produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹49m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₹130m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for TVS Electronics (of which 2 shouldn't be ignored!) you should know about.
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.