Accenture (NYSE:ACN) Could Easily Take On More Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies Accenture plc (NYSE:ACN) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Accenture's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of May 2025 Accenture had US$5.10b of debt, an increase on US$1.68b, over one year. However, its balance sheet shows it holds US$9.64b in cash, so it actually has US$4.54b net cash.

A Look At Accenture's Liabilities

According to the last reported balance sheet, Accenture had liabilities of US$18.8b due within 12 months, and liabilities of US$13.0b due beyond 12 months. On the other hand, it had cash of US$9.64b and US$15.1b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$7.07b.

Given Accenture has a humongous market capitalization of US$159.6b, 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. While it does have liabilities worth noting, Accenture also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Accenture

Fortunately, Accenture grew its EBIT by 3.5% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Accenture'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 company can only pay off debt with cold hard cash, not accounting profits. Accenture 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, Accenture recorded free cash flow worth a fulsome 91% 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

We could understand if investors are concerned about Accenture's liabilities, but we can be reassured by the fact it has has net cash of US$4.54b. The cherry on top was that in converted 91% of that EBIT to free cash flow, bringing in US$10b. So is Accenture'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 Accenture, 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.