Ilex Medical (TLV:ILX) could easily take on more debt

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We can see that Ilex Medical Ltd (TLV:ILX) uses debt in its business. But does this debt worry shareholders?

Why is debt risky?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

Discover our latest analysis for Ilex Medical

What is Ilex Medical’s net debt?

You can click on the graph below for historical figures, but it shows that Ilex Medical had a debt of ₪6.09 million in September 2021, compared to ₪26.8 million a year before. However, he has ₪192.8 million in cash to offset this, resulting in a net cash of ₪186.7 million.

TASE: ILX Debt to Equity February 14, 2022

A look at Ilex Medical’s responsibilities

We can see from the most recent balance sheet that Ilex Medical had liabilities of £267.7m due within a year, and liabilities of £59.7m due beyond . In return, he had ₪192.8 million in cash and ₪300.0 million in debt due within 12 months. He can therefore boast of having 165.4 million more liquid assets than total Passives.

This surplus suggests that Ilex Medical has a conservative balance sheet, and could probably deleverage without much difficulty. Simply put, the fact that Ilex Medical has more cash than debt is arguably a good indication that it can safely manage its debt.

On top of that, we are pleased to report that Ilex Medical increased its EBIT by 65%, reducing the specter of future debt repayments. There is no doubt that we learn the most about debt from the balance sheet. But it is Ilex Medical’s results that will influence the balance sheet in the future. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

Finally, a company can only repay its debts with cash, not book profits. Ilex Medical may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Over the past three years, Ilex Medical has produced strong free cash flow equivalent to 69% of its EBIT, which is what we expected. This cold hard cash allows him to reduce his debt whenever he wants.

Summary

While we sympathize with investors who find debt a concern, you should bear in mind that Ilex Medical has a net cash position of ₪186.7 million, as well as more liquid assets than liabilities. And it has impressed us with its 65% EBIT growth over the past year. Is Ilex Medical’s debt then a risk? This does not seem to us to be the case. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example – Ilex Medical has 1 warning sign we think you should know.

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. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. 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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