Does Inter Industries Plus (TLV:ININ) 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.' 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. Importantly, Inter Industries Plus Ltd (TLV:ININ) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Inter Industries Plus

What Is Inter Industries Plus's Debt?

You can click the graphic below for the historical numbers, but it shows that Inter Industries Plus had ₪33.9m of debt in September 2022, down from ₪38.9m, one year before. However, it does have ₪52.6m in cash offsetting this, leading to net cash of ₪18.8m.

A Look At Inter Industries Plus' Liabilities

Zooming in on the latest balance sheet data, we can see that Inter Industries Plus had liabilities of ₪280.5m due within 12 months and liabilities of ₪60.1m due beyond that. On the other hand, it had cash of ₪52.6m and ₪294.4m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This short term liquidity is a sign that Inter Industries Plus could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Inter Industries Plus boasts net cash, so it's fair to say it does not have a heavy debt load!

We also note that Inter Industries Plus improved its EBIT from a last year's loss to a positive ₪18m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Inter Industries Plus'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. Inter Industries Plus 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 year, Inter Industries Plus burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Inter Industries Plus has ₪18.8m in net cash and a decent-looking balance sheet. So we don't have any problem with Inter Industries Plus's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Inter Industries Plus , and understanding them should be part of your investment process.

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.