Does Eicher Motors (NSE:EICHERMOT) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Eicher Motors Limited (NSE:EICHERMOT) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. 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 get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Eicher Motors's Debt?

As you can see below, at the end of September 2025, Eicher Motors had ₹2.96b of debt, up from ₹2.64b a year ago. Click the image for more detail. However, it does have ₹48.7b in cash offsetting this, leading to net cash of ₹45.7b.

A Look At Eicher Motors' Liabilities

We can see from the most recent balance sheet that Eicher Motors had liabilities of ₹50.5b falling due within a year, and liabilities of ₹18.1b due beyond that. Offsetting these obligations, it had cash of ₹48.7b as well as receivables valued at ₹7.14b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹12.7b.

This state of affairs indicates that Eicher Motors' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹1.89t company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Eicher Motors boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Eicher Motors

On the other hand, Eicher Motors saw its EBIT drop by 8.8% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Eicher Motors can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Eicher Motors may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Eicher Motors recorded free cash flow worth 74% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Eicher Motors has ₹45.7b in net cash. The cherry on top was that in converted 74% of that EBIT to free cash flow, bringing in ₹40b. So we don't think Eicher Motors's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Eicher Motors, you may well want to click here to check an interactive graph of its earnings per share history.

At the end 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 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.