Force Motors (NSE:FORCEMOT) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Force Motors Limited (NSE:FORCEMOT) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Force Motors's Debt?

You can click the graphic below for the historical numbers, but it shows that Force Motors had ₹174.3m of debt in March 2025, down from ₹5.25b, one year before. But it also has ₹5.07b in cash to offset that, meaning it has ₹4.90b net cash.

How Healthy Is Force Motors' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Force Motors had liabilities of ₹17.3b due within 12 months and liabilities of ₹3.73b due beyond that. On the other hand, it had cash of ₹5.07b and ₹1.75b worth of receivables due within a year. So its liabilities total ₹14.2b more than the combination of its cash and short-term receivables.

Of course, Force Motors has a market capitalization of ₹188.0b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Force Motors boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Force Motors

In addition to that, we're happy to report that Force Motors has boosted its EBIT by 30%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Force Motors's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Force 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. During the last three years, Force Motors generated free cash flow amounting to a very robust 99% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Force Motors has ₹4.90b in net cash. And it impressed us with free cash flow of ₹6.0b, being 99% of its EBIT. So we don't think Force Motors's use of debt is risky. 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. We've identified 3 warning signs with Force Motors , and understanding them should be part of your investment process.

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.