We Think HCL Technologies (NSE:HCLTECH) Can Manage Its Debt With Ease

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.' 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. Importantly, HCL Technologies Limited (NSE:HCLTECH) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does HCL Technologies Carry?

The image below, which you can click on for greater detail, shows that HCL Technologies had debt of US$268.0m at the end of March 2025, a reduction from US$280.0m over a year. But it also has US$3.36b in cash to offset that, meaning it has US$3.10b net cash.

How Strong Is HCL Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HCL Technologies had liabilities of US$3.28b due within 12 months and liabilities of US$917.0m due beyond that. Offsetting these obligations, it had cash of US$3.36b as well as receivables valued at US$3.28b due within 12 months. So it actually has US$2.45b more liquid assets than total liabilities.

This surplus suggests that HCL Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that HCL Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for HCL Technologies

Fortunately, HCL Technologies grew its EBIT by 4.7% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if HCL Technologies can strengthen its balance sheet over time. 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. HCL Technologies 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. During the last three years, HCL Technologies generated free cash flow amounting to a very robust 98% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that HCL Technologies has net cash of US$3.10b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$2.5b, being 98% of its EBIT. So we don't think HCL Technologies's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that HCL Technologies is showing 1 warning sign in our investment analysis , you should know about...

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.