Here's Why Rami Levi Chain Stores Hashikma Marketing 2006 (TLV:RMLI) Can Manage Its Debt Responsibly

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 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, Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Rami Levi Chain Stores Hashikma Marketing 2006

What Is Rami Levi Chain Stores Hashikma Marketing 2006's Debt?

The image below, which you can click on for greater detail, shows that Rami Levi Chain Stores Hashikma Marketing 2006 had debt of ₪10.1m at the end of March 2024, a reduction from ₪13.9m over a year. But it also has ₪992.9m in cash to offset that, meaning it has ₪982.9m net cash.

A Look At Rami Levi Chain Stores Hashikma Marketing 2006's Liabilities

The latest balance sheet data shows that Rami Levi Chain Stores Hashikma Marketing 2006 had liabilities of ₪1.87b due within a year, and liabilities of ₪1.87b falling due after that. On the other hand, it had cash of ₪992.9m and ₪386.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪2.36b.

This is a mountain of leverage relative to its market capitalization of ₪3.06b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Rami Levi Chain Stores Hashikma Marketing 2006 also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Rami Levi Chain Stores Hashikma Marketing 2006 grew its EBIT by 38% 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 it is Rami Levi Chain Stores Hashikma Marketing 2006'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Rami Levi Chain Stores Hashikma Marketing 2006 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, Rami Levi Chain Stores Hashikma Marketing 2006 actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Rami Levi Chain Stores Hashikma Marketing 2006 does have more liabilities than liquid assets, it also has net cash of ₪982.9m. And it impressed us with free cash flow of ₪356m, being 107% of its EBIT. So is Rami Levi Chain Stores Hashikma Marketing 2006's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Rami Levi Chain Stores Hashikma Marketing 2006 has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.