These 4 Measures Indicate That Siemens (NSE:SIEMENS) Is Using Debt Reasonably Well

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 Siemens Limited (NSE:SIEMENS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Siemens's Debt?

You can click the graphic below for the historical numbers, but it shows that Siemens had ₹1.35b of debt in March 2025, down from ₹1.83b, one year before. But on the other hand it also has ₹60.9b in cash, leading to a ₹59.6b net cash position.

How Strong Is Siemens' Balance Sheet?

We can see from the most recent balance sheet that Siemens had liabilities of ₹89.3b falling due within a year, and liabilities of ₹6.79b due beyond that. Offsetting this, it had ₹60.9b in cash and ₹58.1b in receivables that were due within 12 months. So it can boast ₹22.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Siemens could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Siemens has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Siemens

The good news is that Siemens has increased its EBIT by 2.3% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Siemens will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Siemens 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, Siemens's free cash flow amounted to 45% 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 Siemens has ₹59.6b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 2.3% in the last twelve months. So we don't have any problem with Siemens's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Siemens, you may well want to click here to check an interactive graph of its earnings per share history.

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.