Does Honeywell Automation India (NSE:HONAUT) Have A Healthy Balance Sheet?

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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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Honeywell Automation India Limited (NSE:HONAUT) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Honeywell Automation India's Debt?

As you can see below, at the end of March 2025, Honeywell Automation India had ₹1.01b of debt, up from ₹596.0m a year ago. Click the image for more detail. But it also has ₹32.9b in cash to offset that, meaning it has ₹31.9b net cash.

A Look At Honeywell Automation India's Liabilities

We can see from the most recent balance sheet that Honeywell Automation India had liabilities of ₹14.6b falling due within a year, and liabilities of ₹1.09b due beyond that. Offsetting these obligations, it had cash of ₹32.9b as well as receivables valued at ₹15.9b due within 12 months. So it actually has ₹33.1b more liquid assets than total liabilities.

This surplus suggests that Honeywell Automation India has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Honeywell Automation India boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Honeywell Automation India

But the other side of the story is that Honeywell Automation India saw its EBIT decline by 9.2% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Honeywell Automation India can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Honeywell Automation India 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 most recent three years, Honeywell Automation India recorded free cash flow worth 74% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Honeywell Automation India has ₹31.9b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₹4.0b, being 74% of its EBIT. So is Honeywell Automation India'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 Honeywell Automation India, 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.