Debt is neither good nor bad by itself. Used well, borrowing helps a company build plants, open stores and grow faster than its own cash would allow. Too much of it can turn a bad year into a crisis. This article explains how to judge a company's debt in plain numbers: how much it owes compared with what it owns, whether it can pay the interest, whether it has more cash than debt, and whether its cash can meet debt falling due soon.
Why companies borrow
Companies borrow to fund new factories, buy other businesses, manage seasonal needs, or simply because borrowing can cost less than raising money by issuing shares. Interest on debt is usually tax-deductible, which adds to its appeal. The question is not whether a company borrows, but whether its debt is comfortable for its business.
Measure 1: how much it owes vs owns
PositoAI's Owes vs Owns figure compares everything a company owes (total liabilities) with everything it owns (total assets), from its latest balance sheet. "0.40×" means it owes 40 paise for every rupee it owns. Below 1× it owns more than it owes; above 1× it owes more than it owns.
Banks and lenders naturally show high figures, because customers' deposits count as money they owe, so they are best compared only with other banks.
Example on PositoAI: Owes vs Owns, India and US
On 20 Oct 2026, ITC owed about ₹0.22 for every ₹1 it owned and Maruti Suzuki about ₹0.28, while Tata Power owed about ₹0.73. State Bank of India showed about 0.92, typical for a bank. In the US, Ford owed about $0.87 per $1 owned and Apple about $0.72.
Among non-financial ranked companies, 1,228 of 1,890 in India owed less than half of what they owned, and 43 owed more than they owned. In the US, 1,459 of 3,215 owed less than half, and 297 owed more than they owned. (As on 20 Oct 2026.)
Measure 2: can it pay the interest?
Interest cover compares operating profit with interest paid. Cover of 5× means profit is five times the interest bill; below 1× means profit does not even cover interest. A related view is how much of every 100 of sales goes on interest, shown on each company's PosiFunda page.
Measure 3: more cash than debt?
A company may have debt but also large cash balances. Net debt is debt minus cash; if cash is larger, the company has net cash. PositoAI's Cash Cushion Ratio shows net cash or net debt as a share of the company's market value, which puts the debt in proportion.
Measure 4: debt falling due soon
Debt that must be repaid within a year matters most, because it needs cash soon. PositoAI's Debt Due Cover Ratio compares a company's yearly operating cash with the debt due within a year. Well above 1× means yearly cash comfortably covers it; below 1× means the company may need to refinance or use reserves.
Example on PositoAI: two views of debt
On their PosiFunda pages, TCS's yearly operating cash covered its debt due within a year about 28.5 times, and it held net cash of about 3% of its market value. Ford's Cash Cushion Ratio showed net debt of about 2.6 times its market value, much of it from its car-loan business, where borrowing is part of the business model. The same word "debt" means very different things in these two companies. (Latest yearly results, as on 20 Oct 2026.)
Putting it together
No single figure tells the whole story. A company that owes a lot compared with what it owns may still be comfortable if its profits cover interest many times and its cash covers debt due soon. A company with modest debt can still be stretched if its profits are falling or its debt is mostly due this year. Looking at the four measures together, and comparing with similar companies, gives a far clearer picture.
It also helps to watch the trend: debt rising faster than profits over several years is worth noticing, even if today's figures look fine.
Common misconceptions
"Debt-free companies are always better." Sensible borrowing can fund growth; some debt-free companies simply grow slowly.
"High debt always means danger." Steady businesses such as utilities can carry high debt safely if their income is predictable.
"Banks have too much debt." Deposits count as liabilities; banks are judged on different measures, such as capital and loan quality.
Frequently asked questions
What is a safe level of debt?
It depends on the business: stable, predictable companies can carry more than cyclical ones.
What is net debt?
Total debt minus cash; if cash is larger, the company has net cash.
What is interest cover?
Operating profit divided by interest paid; it shows how easily interest can be paid.
Do lease obligations count as debt?
Accounts include them, but PositoAI's Debt free list counts only borrowings and shows leases separately.
How to use this on PositoAI
Each company's PosiFunda page shows Owes vs Owns, interest cover and cash vs debt under Standard fundamentals, and the Debt Due Cover and Cash Cushion Ratios among the PosiFunda Ratios. The Low debt Top 10 lists rank companies by Owes vs Owns. PosiStep 12 of PosiCourse, PositoAI's free stock market course, explains the balance sheet.
Suggested reading
How RBI Interest Rate Decisions Affect the Stock Market · What Is the P/B Ratio? · What Is the P/E Ratio? · How to Read Quarterly Results · What is a Bond?
Summary
Debt helps companies grow but can turn bad years into crises. Four plain measures show how comfortable it is: how much a company owes compared with what it owns, whether profit covers interest, whether it has more cash than debt, and whether yearly cash covers debt due soon. Banks need separate comparison, steady businesses can carry more debt than cyclical ones, and the trend over several years matters as much as today's figures.