These 4 Measures Indicate That Aran Research & Development (1982) (TLV:ARAN) Is Using Debt Safely

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Aran Research & Development (1982) Ltd. (TLV:ARAN) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses 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.

What Is Aran Research & Development (1982)'s Net Debt?

The image below, which you can click on for greater detail, shows that Aran Research & Development (1982) had debt of ₪23.9m at the end of June 2025, a reduction from ₪48.4m over a year. On the flip side, it has ₪17.7m in cash leading to net debt of about ₪6.24m.

How Strong Is Aran Research & Development (1982)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aran Research & Development (1982) had liabilities of ₪61.2m due within 12 months and liabilities of ₪25.0m due beyond that. Offsetting this, it had ₪17.7m in cash and ₪110.7m in receivables that were due within 12 months. So it actually has ₪42.3m more liquid assets than total liabilities.

This surplus strongly suggests that Aran Research & Development (1982) has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity.

View our latest analysis for Aran Research & Development (1982)

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Aran Research & Development (1982) has a low net debt to EBITDA ratio of only 0.30. And its EBIT easily covers its interest expense, being 2k times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Better yet, Aran Research & Development (1982) grew its EBIT by 1,666% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Aran Research & Development (1982)'s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, Aran Research & Development (1982) actually produced more free cash flow than EBIT over the last two years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

Aran Research & Development (1982)'s interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its conversion of EBIT to free cash flow is also very heartening. Based on the data we have reviewed, it's as clear as day that Aran Research & Development (1982)'s balance sheet is as healthy as a vaccinated Olympian. We're so relaxed with its use of debt that we should be poolside in Hawaii. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Aran Research & Development (1982) that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.