ITC Hotels (NSE:ITCHOTELS) Has A Rock Solid Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies ITC Hotels Limited (NSE:ITCHOTELS) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ITC Hotels's Debt?

As you can see below, at the end of March 2025, ITC Hotels had ₹733.0m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds ₹18.3b in cash, so it actually has ₹17.5b net cash.

A Look At ITC Hotels' Liabilities

According to the last reported balance sheet, ITC Hotels had liabilities of ₹11.6b due within 12 months, and liabilities of ₹5.87b due beyond 12 months. On the other hand, it had cash of ₹18.3b and ₹2.69b worth of receivables due within a year. So it can boast ₹3.48b more liquid assets than total liabilities.

This state of affairs indicates that ITC Hotels' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹468.0b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that ITC Hotels has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for ITC Hotels

In addition to that, we're happy to report that ITC Hotels has boosted its EBIT by 51%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ITC Hotels's ability to maintain a healthy balance sheet going forward. 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 ITC Hotels 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. Looking at the most recent two years, ITC Hotels recorded free cash flow of 37% of its EBIT, which is weaker 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 ITC Hotels has net cash of ₹17.5b, as well as more liquid assets than liabilities. And we liked the look of last year's 51% year-on-year EBIT growth. So is ITC Hotels'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 ITC Hotels, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.