David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Bosch Limited (NSE:BOSCHLTD) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Bosch's Debt?
The image below, which you can click on for greater detail, shows that at March 2025 Bosch had debt of ₹1.18b, up from ₹393.0m in one year. But it also has ₹46.5b in cash to offset that, meaning it has ₹45.4b net cash.
A Look At Bosch's Liabilities
We can see from the most recent balance sheet that Bosch had liabilities of ₹62.0b falling due within a year, and liabilities of ₹2.28b due beyond that. Offsetting these obligations, it had cash of ₹46.5b as well as receivables valued at ₹41.5b due within 12 months. So it actually has ₹23.8b more liquid assets than total liabilities.
Having regard to Bosch's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₹1.20t company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Bosch has more cash than debt is arguably a good indication that it can manage its debt safely.
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Also positive, Bosch grew its EBIT by 22% in the last year, and that should make it easier to pay down debt, going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Bosch can strengthen its balance sheet over time. 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 Bosch 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. During the last three years, Bosch produced sturdy free cash flow equating to 72% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Bosch has net cash of ₹45.4b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₹21b, being 72% of its EBIT. So is Bosch's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Bosch you should be aware of, and 1 of them is significant.
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.