These 4 Measures Indicate That Accel Solutions Group (TLV:ACCL) Is Using Debt Reasonably Well

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.' 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, Accel Solutions Group Ltd (TLV:ACCL) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Accel Solutions Group

How Much Debt Does Accel Solutions Group Carry?

As you can see below, at the end of September 2022, Accel Solutions Group had ₪23.0m of debt, up from ₪1.78m a year ago. Click the image for more detail. However, it does have ₪25.6m in cash offsetting this, leading to net cash of ₪2.52m.

A Look At Accel Solutions Group's Liabilities

According to the last reported balance sheet, Accel Solutions Group had liabilities of ₪83.6m due within 12 months, and liabilities of ₪15.4m due beyond 12 months. On the other hand, it had cash of ₪25.6m and ₪106.5m worth of receivables due within a year. So it actually has ₪33.0m more liquid assets than total liabilities.

It's good to see that Accel Solutions Group has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Accel Solutions Group has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Accel Solutions Group has boosted its EBIT by 67%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Accel Solutions Group's earnings that will influence how the balance sheet holds up in the future. 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. Accel Solutions Group 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. During the last three years, Accel Solutions Group burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Accel Solutions Group has ₪2.52m in net cash and a decent-looking balance sheet. And we liked the look of last year's 67% year-on-year EBIT growth. So is Accel Solutions Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Accel Solutions Group that you should be aware of before investing here.

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.