Maruti Suzuki India (NSE:MARUTI) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Maruti Suzuki India Limited (NSE:MARUTI) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 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, 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.

Check out our latest analysis for Maruti Suzuki India

How Much Debt Does Maruti Suzuki India Carry?

You can click the graphic below for the historical numbers, but it shows that Maruti Suzuki India had ₹1.19b of debt in March 2024, down from ₹12.5b, one year before. But it also has ₹67.4b in cash to offset that, meaning it has ₹66.2b net cash.

A Look At Maruti Suzuki India's Liabilities

Zooming in on the latest balance sheet data, we can see that Maruti Suzuki India had liabilities of ₹259.5b due within 12 months and liabilities of ₹37.6b due beyond that. Offsetting this, it had ₹67.4b in cash and ₹55.8b in receivables that were due within 12 months. So it has liabilities totalling ₹174.0b more than its cash and near-term receivables, combined.

Given Maruti Suzuki India has a humongous market capitalization of ₹4.01t, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Maruti Suzuki India boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Maruti Suzuki India has boosted its EBIT by 62%, thus reducing the spectre of future debt repayments. 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 Maruti Suzuki India 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 Maruti Suzuki India 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 most recent three years, Maruti Suzuki India recorded free cash flow worth 50% 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 Maruti Suzuki India has ₹66.2b in net cash. And it impressed us with its EBIT growth of 62% over the last year. So we don't think Maruti Suzuki India's use of debt is 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. For example, we've discovered 2 warning signs for Maruti Suzuki India that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.