Does Danel (Adir Yeoshua) (TLV:DANE) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Danel (Adir Yeoshua) Ltd (TLV:DANE) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Danel (Adir Yeoshua)

What Is Danel (Adir Yeoshua)'s Debt?

As you can see below, Danel (Adir Yeoshua) had ₪116.7m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₪171.5m in cash offsetting this, leading to net cash of ₪54.8m.

How Strong Is Danel (Adir Yeoshua)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Danel (Adir Yeoshua) had liabilities of ₪489.5m due within 12 months and liabilities of ₪326.6m due beyond that. Offsetting this, it had ₪171.5m in cash and ₪423.8m in receivables that were due within 12 months. So its liabilities total ₪220.8m more than the combination of its cash and short-term receivables.

Since publicly traded Danel (Adir Yeoshua) shares are worth a total of ₪1.69b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Danel (Adir Yeoshua) boasts net cash, so it's fair to say it does not have a heavy debt load!

But the other side of the story is that Danel (Adir Yeoshua) saw its EBIT decline by 6.4% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. When analysing debt levels, the balance sheet is the obvious place to start. But it is Danel (Adir Yeoshua)'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Danel (Adir Yeoshua) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Danel (Adir Yeoshua) generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Danel (Adir Yeoshua) does have more liabilities than liquid assets, it also has net cash of ₪54.8m. The cherry on top was that in converted 96% of that EBIT to free cash flow, bringing in ₪191m. So we are not troubled with Danel (Adir Yeoshua)'s debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Danel (Adir Yeoshua) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.