Does Eureka Forbes (NSE:EUREKAFORB) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 note that Eureka Forbes Limited (NSE:EUREKAFORB) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Eureka Forbes's Debt?

You can click the graphic below for the historical numbers, but it shows that Eureka Forbes had ₹255.5m of debt in March 2025, down from ₹387.4m, one year before. But it also has ₹3.11b in cash to offset that, meaning it has ₹2.85b net cash.

A Look At Eureka Forbes' Liabilities

The latest balance sheet data shows that Eureka Forbes had liabilities of ₹9.52b due within a year, and liabilities of ₹9.76b falling due after that. Offsetting this, it had ₹3.11b in cash and ₹1.81b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹14.4b.

Given Eureka Forbes has a market capitalization of ₹114.0b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Eureka Forbes boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Eureka Forbes

In addition to that, we're happy to report that Eureka Forbes has boosted its EBIT by 40%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Eureka Forbes's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Eureka Forbes 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. Happily for any shareholders, Eureka Forbes actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Eureka Forbes's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₹2.85b. And it impressed us with free cash flow of ₹1.9b, being 115% of its EBIT. So is Eureka Forbes's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Eureka Forbes, 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.