We Think Bharat Electronics (NSE:BEL) Can Stay On Top Of Its Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 Bharat Electronics Limited (NSE:BEL) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Bharat Electronics's Net Debt?

As you can see below, Bharat Electronics had ₹612.3m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has ₹95.5b in cash to offset that, meaning it has ₹94.8b net cash.

How Strong Is Bharat Electronics' Balance Sheet?

We can see from the most recent balance sheet that Bharat Electronics had liabilities of ₹197.5b falling due within a year, and liabilities of ₹10.9b due beyond that. Offsetting these obligations, it had cash of ₹95.5b as well as receivables valued at ₹141.1b due within 12 months. So it can boast ₹28.2b more liquid assets than total liabilities.

This state of affairs indicates that Bharat Electronics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹2.72t company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Bharat Electronics boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Bharat Electronics

On top of that, Bharat Electronics grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Bharat Electronics 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Bharat Electronics 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. In the last three years, Bharat Electronics's free cash flow amounted to 28% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Bharat Electronics has net cash of ₹94.8b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 36% over the last year. So is Bharat Electronics's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Bharat Electronics .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.