In financial theory, debt is seen as a cheaper and more accessible form of financing, but its overuse can lead to financial distress. The optimal level of debt has been a subject of study since MM’s work in 1958, with theories like the trade-off theory suggesting that profitable and large firms can sustain higher debt levels. However, in practice, these firms often use less debt than theoretically optimal. Managers may not prioritize maintaining a specific capital structure, as it may not be essential for the company’s survival.
Debt financing can burden companies with periodic interest and principal repayments, potentially leading to underinvestment and a decrease in company value. Factors like agency problems, opportunistic behavior, and information asymmetry also influence financing decisions. The pecking order theory suggests that companies prefer using internal reserves first, then debt, and lastly equity for financing. However, empirical evidence doesn’t always support this theory, indicating that management preferences and behavior might better explain financing decisions.
Here’s a look at some of the top companies in India known for their high cash reserves paired with low debt levels. These companies are financially strong, which provides them with stability and growth opportunities.
Leading Companies with High Cash Reserves:
- Coal India: ₹30,235 crore
- Hindustan Aeronautics Limited (HAL): ₹26,422 crore
- HCL Technologies: ₹20,150 crore
- Infosys: ₹14,786 crore
- Tata Consultancy Services (TCS): ₹13,286 crore
Other Notable Companies:
- NMDC: ₹12,364 crore
- Hindustan Unilever (HUL): ₹7,560 crore
- ITC: ₹7,218 crore
- Oil India: ₹5,937 crore
- Tech Mahindra: ₹4,736 crore
Additional Companies with Strong Financials:
- Maruti Suzuki: ₹2,827 crore
- ZF Commercial: ₹1,300 crore
- Bajaj Auto: ₹1,000 crore
- Cipla: ₹1,000 crore
- Lakshmi Machine: ₹1,000 crore
- MOIL: ₹800 crore
- Hero MotoCorp: ₹700 crore
- Avenue Supermart: ₹638 crore
- Elantas Beck: ₹350 crore
- Goodyear: ₹150 crore
These companies are well-positioned to leverage their financial strength for future investments, expansions, and navigating economic uncertainties. Their low debt levels further enhance their resilience in challenging market conditions.
