Is Hero MotoCorp (NSE:HEROMOTOCO) A Risky Investment?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Hero MotoCorp Limited (NSE:HEROMOTOCO) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Hero MotoCorp Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Hero MotoCorp had ₹4.57b of debt, an increase on ₹3.63b, over one year. However, it does have ₹72.1b in cash offsetting this, leading to net cash of ₹67.5b.

A Look At Hero MotoCorp's Liabilities

Zooming in on the latest balance sheet data, we can see that Hero MotoCorp had liabilities of ₹74.8b due within 12 months and liabilities of ₹15.1b due beyond that. On the other hand, it had cash of ₹72.1b and ₹36.1b worth of receivables due within a year. So it can boast ₹18.3b more liquid assets than total liabilities.

This short term liquidity is a sign that Hero MotoCorp could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Hero MotoCorp boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Hero MotoCorp

And we also note warmly that Hero MotoCorp grew its EBIT by 12% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Hero MotoCorp's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Hero MotoCorp 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. During the last three years, Hero MotoCorp produced sturdy free cash flow equating to 73% 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 it is always sensible to investigate a company's debt, in this case Hero MotoCorp has ₹67.5b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 73% of that EBIT to free cash flow, bringing in ₹34b. So is Hero MotoCorp's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Hero MotoCorp you should be aware of.

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.