We Think NICE (TLV:NICE) Can Manage Its Debt With Ease

June 26, 2022
Source: Shutterstock

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 can see that NICE Ltd. (TLV:NICE) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. 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.

See 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$695.3m in debt in March 2022; about the same as the year before. But it also has US$1.49b in cash to offset that, meaning it has US$795.5m net cash.

TASE:NICE Debt to Equity History June 26th 2022

A Look At NICE's Liabilities

According to the last reported balance sheet, NICE had liabilities of US$1.21b due within 12 months, and liabilities of US$619.5m due beyond 12 months. Offsetting this, it had US$1.49b in cash and US$416.7m in receivables that were due within 12 months. So it can boast US$81.6m more liquid assets than total liabilities.

This state of affairs indicates that NICE's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$12.9b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that NICE has more cash than debt is arguably a good indication that it can manage its debt safely.

The good news is that NICE has increased its EBIT by 8.7% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if NICE 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. While NICE has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. 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 we empathize with investors who find debt concerning, you should keep in mind that NICE has net cash of US$795.5m, as well as more liquid assets than liabilities. The cherry on top was that in converted 147% of that EBIT to free cash flow, bringing in US$415m. 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, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.



NICE Ltd., together with its subsidiaries, provides cloud platforms for AI-driven digital business solutions worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Future Growth3
Past Performance2
Financial Health6

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with moderate growth potential.