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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies NICE Ltd. (TLV:NICE) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for NICE

What Is NICE's Net Debt?

You can click the graphic below for the historical numbers, but it shows that NICE had US$457.9m of debt in June 2024, down from US$676.7m, one year before. However, its balance sheet shows it holds US$1.50b in cash, so it actually has US$1.05b net cash.

How Healthy Is NICE's Balance Sheet?

The latest balance sheet data shows that NICE had liabilities of US$938.4m due within a year, and liabilities of US$646.6m falling due after that. Offsetting these obligations, it had cash of US$1.50b as well as receivables valued at US$580.1m due within 12 months. So it can boast US$498.7m 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. Succinctly put, NICE boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that NICE has been able to increase its EBIT by 28% 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 ultimately the future profitability of the business will decide if NICE can strengthen its balance sheet over time. 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. 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 generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case NICE has US$1.05b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 125% of that EBIT to free cash flow, bringing in US$639m. 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.

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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.