Shufersal (TLV:SAE) Has A Pretty 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Shufersal Ltd (TLV:SAE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Shufersal Carry?

As you can see below, Shufersal had ₪2.07b of debt at March 2025, down from ₪2.36b a year prior. However, it does have ₪2.38b in cash offsetting this, leading to net cash of ₪312.0m.

A Look At Shufersal's Liabilities

We can see from the most recent balance sheet that Shufersal had liabilities of ₪5.49b falling due within a year, and liabilities of ₪6.12b due beyond that. On the other hand, it had cash of ₪2.38b and ₪1.24b worth of receivables due within a year. So its liabilities total ₪7.99b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₪10.7b, so it does suggest shareholders should keep an eye on Shufersal's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Shufersal boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Shufersal

Importantly, Shufersal grew its EBIT by 63% 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 you can't view debt in total isolation; since Shufersal will need earnings to service that debt. 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. Shufersal 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. Over the last three years, Shufersal actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Shufersal does have more liabilities than liquid assets, it also has net cash of ₪312.0m. And it impressed us with free cash flow of ₪2.1b, being 201% of its EBIT. So we are not troubled with Shufersal's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Shufersal .

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.