Does Synel M.L.L Payway (TLV:SNEL) Have A Healthy Balance Sheet?

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. As with many other companies Synel M.L.L Payway Ltd (TLV:SNEL) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

Check out our latest analysis for Synel M.L.L Payway

How Much Debt Does Synel M.L.L Payway Carry?

You can click the graphic below for the historical numbers, but it shows that Synel M.L.L Payway had ₪8.44m of debt in December 2022, down from ₪481.3m, one year before. However, it does have ₪12.9m in cash offsetting this, leading to net cash of ₪4.47m.

How Strong Is Synel M.L.L Payway's Balance Sheet?

We can see from the most recent balance sheet that Synel M.L.L Payway had liabilities of ₪36.5m falling due within a year, and liabilities of ₪5.77m due beyond that. On the other hand, it had cash of ₪12.9m and ₪31.5m worth of receivables due within a year. So it can boast ₪2.12m more liquid assets than total liabilities.

This surplus suggests that Synel M.L.L Payway has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Synel M.L.L Payway boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that Synel M.L.L Payway has seen its EBIT plunge 11% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Synel M.L.L Payway will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Synel M.L.L Payway 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, Synel M.L.L Payway actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Synel M.L.L Payway has ₪4.47m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₪27m, being 362% of its EBIT. So is Synel M.L.L Payway's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Synel M.L.L Payway (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.