Hindustan Unilever (NSE:HINDUNILVR) Could Easily Take On More Debt

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

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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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Hindustan Unilever's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Hindustan Unilever had ₹16.5b of debt, an increase on ₹14.8b, over one year. However, its balance sheet shows it holds ₹110.5b in cash, so it actually has ₹94.1b net cash.

How Healthy Is Hindustan Unilever's Balance Sheet?

We can see from the most recent balance sheet that Hindustan Unilever had liabilities of ₹165.4b falling due within a year, and liabilities of ₹137.3b due beyond that. Offsetting these obligations, it had cash of ₹110.5b as well as receivables valued at ₹46.8b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹145.4b.

Since publicly traded Hindustan Unilever shares are worth a very impressive total of ₹6.18t, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Hindustan Unilever boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Hindustan Unilever

While Hindustan Unilever doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. 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 Hindustan Unilever'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Hindustan Unilever 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. Over the last three years, Hindustan Unilever recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually 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 Hindustan Unilever has ₹94.1b in net cash. And it impressed us with free cash flow of ₹106b, being 85% of its EBIT. So we don't think Hindustan Unilever's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Hindustan Unilever that you should be aware of before investing here.

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.