Does Cellcom Israel (TLV:CEL) Have A Healthy Balance Sheet?

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 Cellcom Israel Ltd. (TLV:CEL) makes use of debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Cellcom Israel

How Much Debt Does Cellcom Israel Carry?

You can click the graphic below for the historical numbers, but it shows that Cellcom Israel had ₪3.01b of debt in September 2020, down from ₪3.33b, one year before. However, because it has a cash reserve of ₪750.0m, its net debt is less, at about ₪2.26b.

A Look At Cellcom Israel's Liabilities

According to the last reported balance sheet, Cellcom Israel had liabilities of ₪1.75b due within 12 months, and liabilities of ₪3.07b due beyond 12 months. On the other hand, it had cash of ₪750.0m and ₪1.02b worth of receivables due within a year. So its liabilities total ₪3.06b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of ₪2.65b, we think shareholders really should watch Cellcom Israel's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Cellcom Israel's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Cellcom Israel saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Cellcom Israel produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₪24m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of ₪181m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Cellcom Israel (at least 1 which is concerning) , and understanding them should be part of your investment process.

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. 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.
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