Hilan (TLV:HLAN) Could Easily Take On More Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Hilan Ltd. (TLV:HLAN) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Hilan's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Hilan had ₪61.6m of debt in December 2024, down from ₪85.5m, one year before. However, it does have ₪343.0m in cash offsetting this, leading to net cash of ₪281.4m.

A Look At Hilan's Liabilities

The latest balance sheet data shows that Hilan had liabilities of ₪1.60b due within a year, and liabilities of ₪356.7m falling due after that. On the other hand, it had cash of ₪343.0m and ₪839.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪770.0m.

Of course, Hilan has a market capitalization of ₪5.55b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Hilan also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Hilan

And we also note warmly that Hilan grew its EBIT by 14% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Hilan will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Hilan 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. Over the last three years, Hilan actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Hilan's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₪281.4m. And it impressed us with free cash flow of ₪366m, being 104% of its EBIT. So we don't think Hilan's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Hilan's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.