These 4 Measures Indicate That HEG (NSE:HEG) Is Using Debt Safely

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 HEG Limited (NSE:HEG) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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 HEG's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 HEG had debt of ₹6.42b, up from ₹5.61b in one year. But it also has ₹7.66b in cash to offset that, meaning it has ₹1.24b net cash.

How Strong Is HEG's Balance Sheet?

The latest balance sheet data shows that HEG had liabilities of ₹11.5b due within a year, and liabilities of ₹1.25b falling due after that. Offsetting this, it had ₹7.66b in cash and ₹5.63b in receivables that were due within 12 months. So it actually has ₹537.2m more liquid assets than total liabilities.

This state of affairs indicates that HEG's 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 ₹99.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, HEG boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for HEG

Better yet, HEG grew its EBIT by 409% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if HEG 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. While HEG 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. In the last three years, HEG's free cash flow amounted to 34% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case HEG has ₹1.24b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 409% over the last year. So we don't think HEG's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for HEG that you should be aware of.

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.