Nova (NASDAQ:NVMI) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Nova Ltd. (NASDAQ:NVMI) does use debt in its business. But the real question is whether this debt is making the company risky.

We check all companies for important risks. See what we found for Nova in our free report.

What Risk Does Debt Bring?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Nova's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Nova had US$180.6m of debt in December 2024, down from US$197.7m, one year before. But on the other hand it also has US$586.6m in cash, leading to a US$406.0m net cash position.

How Strong Is Nova's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nova had liabilities of US$388.2m due within 12 months and liabilities of US$74.4m due beyond that. Offsetting these obligations, it had cash of US$586.6m as well as receivables valued at US$140.1m due within 12 months. So it can boast US$264.0m more liquid assets than total liabilities.

This surplus suggests that Nova has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nova has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Nova

In addition to that, we're happy to report that Nova has boosted its EBIT by 42%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Nova can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Nova 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, Nova generated free cash flow amounting to a very robust 90% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Nova has US$406.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$218m, being 90% of its EBIT. So is Nova's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Nova, you may well want to click here to check an interactive graph of its earnings per share history.

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.