NICE (TLV:NICE) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, NICE Ltd. (TLV:NICE) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for NICE

How Much Debt Does NICE Carry?

The image below, which you can click on for greater detail, shows that NICE had debt of US$458.4m at the end of September 2024, a reduction from US$637.8m over a year. However, its balance sheet shows it holds US$1.53b in cash, so it actually has US$1.07b net cash.

How Strong Is NICE's Balance Sheet?

According to the last reported balance sheet, NICE had liabilities of US$1.42b due within 12 months, and liabilities of US$183.6m due beyond 12 months. Offsetting these obligations, it had cash of US$1.53b as well as receivables valued at US$629.9m due within 12 months. So it actually has US$548.2m more liquid assets than total liabilities.

This surplus suggests that NICE has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that NICE has more cash than debt is arguably a good indication that it can manage its debt safely.

Also positive, NICE grew its EBIT by 28% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine NICE's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. NICE 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, NICE 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 it is always sensible to investigate a company's debt, in this case NICE has US$1.07b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$668m, being 121% of its EBIT. So is NICE'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 NICE's earnings per share history for free.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.