Does Rapac Communication & Infrastructure (TLV:RPAC) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Rapac Communication & Infrastructure Ltd (TLV:RPAC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Rapac Communication & Infrastructure's Debt?

You can click the graphic below for the historical numbers, but it shows that Rapac Communication & Infrastructure had ₪81.0m of debt in December 2024, down from ₪164.9m, one year before. However, it does have ₪155.2m in cash offsetting this, leading to net cash of ₪74.1m.

A Look At Rapac Communication & Infrastructure's Liabilities

Zooming in on the latest balance sheet data, we can see that Rapac Communication & Infrastructure had liabilities of ₪385.3m due within 12 months and liabilities of ₪61.2m due beyond that. On the other hand, it had cash of ₪155.2m and ₪326.4m worth of receivables due within a year. So it can boast ₪35.1m more liquid assets than total liabilities.

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

Check out our latest analysis for Rapac Communication & Infrastructure

Importantly, Rapac Communication & Infrastructure grew its EBIT by 62% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Rapac Communication & Infrastructure will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Rapac Communication & Infrastructure 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. Happily for any shareholders, Rapac Communication & Infrastructure actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Rapac Communication & Infrastructure has ₪74.1m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₪13m, being 321% of its EBIT. So is Rapac Communication & Infrastructure's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Rapac Communication & Infrastructure that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.