NICE (TLV:NICE) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, NICE Ltd. (TLV:NICE) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for NICE

What Is NICE's Net Debt?

The chart below, which you can click on for greater detail, shows that NICE had US$666.3m in debt in December 2023; about the same as the year before. But on the other hand it also has US$1.41b in cash, leading to a US$741.5m net cash position.

How Strong Is NICE's Balance Sheet?

We can see from the most recent balance sheet that NICE had liabilities of US$1.12b falling due within a year, and liabilities of US$642.8m due beyond that. Offsetting this, it had US$1.41b in cash and US$676.7m in receivables that were due within 12 months. So it can boast US$321.4m more liquid assets than total liabilities.

This short term liquidity is a sign that NICE could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that NICE has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that NICE has been able to increase its EBIT by 29% in twelve months, making it easier to pay down debt. There's no doubt that we learn most about debt from the balance sheet. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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. Happily for any shareholders, NICE actually produced more free cash flow than EBIT over the last three years. 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$741.5m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$477m, being 123% of its EBIT. So is NICE's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in NICE, you may well want to click here to check an interactive graph of its earnings per share history.

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.