Does Maytronics (TLV:MTRN) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Maytronics Ltd. (TLV:MTRN) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Maytronics

What Is Maytronics's Debt?

As you can see below, at the end of September 2020, Maytronics had ₪123.5m of debt, up from ₪67.3m a year ago. Click the image for more detail. But on the other hand it also has ₪214.1m in cash, leading to a ₪90.6m net cash position.

A Look At Maytronics' Liabilities

According to the last reported balance sheet, Maytronics had liabilities of ₪289.6m due within 12 months, and liabilities of ₪205.2m due beyond 12 months. On the other hand, it had cash of ₪214.1m and ₪190.2m worth of receivables due within a year. So its liabilities total ₪90.5m more than the combination of its cash and short-term receivables.

Having regard to Maytronics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the ₪5.81b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Maytronics boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Maytronics grew its EBIT by 43% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Maytronics's earnings that will influence how the balance sheet holds up in the future. 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. Maytronics 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. During the last three years, Maytronics produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing up

We could understand if investors are concerned about Maytronics's liabilities, but we can be reassured by the fact it has has net cash of ₪90.6m. And it impressed us with its EBIT growth of 43% over the last year. So is Maytronics's debt a risk? It doesn't seem so to us. 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 Maytronics's earnings per share history for free.

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. 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.
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