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

Warren Buffett famously said, '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. As with many other companies NICE Ltd. (TLV:NICE) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for NICE

What Is NICE's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 NICE had US$662.9m of debt, an increase on US$613.2m, over one year. But it also has US$1.43b in cash to offset that, meaning it has US$771.7m net cash.

How Strong Is NICE's Balance Sheet?

We can see from the most recent balance sheet that NICE had liabilities of US$1.11b falling due within a year, and liabilities of US$637.5m due beyond that. Offsetting these obligations, it had cash of US$1.43b as well as receivables valued at US$459.7m due within 12 months. So it actually has US$142.1m 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 while it's hard to imagine that the US$11.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, NICE boasts net cash, so it's fair to say it does not have a heavy debt load!

And we also note warmly that NICE grew its EBIT by 12% last year, making its debt load easier to handle. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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. Happily for any shareholders, NICE actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that NICE has net cash of US$771.7m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$353m, being 141% of its EBIT. So we don't think NICE's use of debt is risky. 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.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.