These 4 Measures Indicate That InterCure (TLV:INCR) Is Using Debt Reasonably Well

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. As with many other companies InterCure Ltd. (TLV:INCR) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

See our latest analysis for InterCure

What Is InterCure's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 InterCure had ₪181.8m of debt, an increase on ₪67.5m, over one year. However, its balance sheet shows it holds ₪215.5m in cash, so it actually has ₪33.6m net cash.

A Look At InterCure's Liabilities

The latest balance sheet data shows that InterCure had liabilities of ₪295.3m due within a year, and liabilities of ₪66.0m falling due after that. Offsetting these obligations, it had cash of ₪215.5m as well as receivables valued at ₪114.9m due within 12 months. So its liabilities total ₪31.0m more than the combination of its cash and short-term receivables.

Since publicly traded InterCure shares are worth a total of ₪556.4m, 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, InterCure boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, InterCure grew its EBIT by 179% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if InterCure can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. InterCure 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. In the last two years, InterCure created free cash flow amounting to 9.7% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

We could understand if investors are concerned about InterCure's liabilities, but we can be reassured by the fact it has has net cash of ₪33.6m. And we liked the look of last year's 179% year-on-year EBIT growth. So is InterCure's debt a risk? It doesn't seem so to us. We'd be motivated to research the stock further if we found out that InterCure insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.