Accenture (NYSE:ACN) appears to be using debt sparingly

Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that Accenture plc (NYSE: ACN) uses debt in its operations. But the more important question is: what risk does this debt create?

When is debt dangerous?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we think about a company’s use of debt, we first look at cash and debt together.

Discover our latest analysis for Accenture

What is Accenture’s net debt?

The image below, which you can click on for more details, shows that as of November 2020, Accenture had $68.8 million in debt, up from $19.6 million in one year. But he also has $8.68 billion in cash to offset that, which means he has $8.61 billion in net cash.


A look at Accenture’s responsibilities

The latest balance sheet data shows Accenture had liabilities of $12.8 billion due within the year, and liabilities of $7.02 billion due thereafter. In compensation for these obligations, it had cash of 8.68 billion US dollars as well as receivables valued at 8.55 billion US dollars due within 12 months. Thus, its liabilities outweigh the sum of its cash and (current) receivables by $2.62 billion.

This state of affairs indicates that Accenture’s balance sheet looks quite strong, as its total liabilities roughly equal its cash. So while it’s hard to imagine the US$167.5 billion company struggling for cash, we still think it’s worth keeping an eye on its balance sheet. Despite its notable liabilities, Accenture has a net cash position, so it’s fair to say that it doesn’t have a lot of debt!

Fortunately, Accenture has grown its EBIT by 3.0% over the past year, making this debt even more manageable. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Accenture can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, a business needs free cash flow to pay off its debts; book profits are not enough. Although Accenture has net cash on its balance sheet, it’s always worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how quickly it’s building ( or erodes) this cash balance. . Over the past three years, Accenture has actually produced more free cash flow than EBIT. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.


While it’s always a good idea to look at a company’s total liabilities, it’s very reassuring that Accenture has $8.61 billion in net cash. The icing on the cake was converting 103% of that EBIT into free cash flow, bringing in $8.4 billion. So is Accenture’s debt a risk? This does not seem to us to be the case. Above most other metrics, we think it’s important to track how quickly earnings per share are growing, if at all. If you’ve also achieved this achievement, you’re in luck, because today you can view this interactive chart of Accenture’s historical earnings per share for free.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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