Sapiens International (NASDAQ:SPNS) Has A Rock Solid Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Sapiens International Corporation N.V. (NASDAQ:SPNS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Sapiens International's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Sapiens International had US$19.8m of debt in March 2025, down from US$39.6m, one year before. However, its balance sheet shows it holds US$205.9m in cash, so it actually has US$186.1m net cash.

A Look At Sapiens International's Liabilities

According to the last reported balance sheet, Sapiens International had liabilities of US$194.9m due within 12 months, and liabilities of US$44.7m due beyond 12 months. Offsetting this, it had US$205.9m in cash and US$121.5m in receivables that were due within 12 months. So it can boast US$87.7m more liquid assets than total liabilities.

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

View our latest analysis for Sapiens International

The good news is that Sapiens International has increased its EBIT by 7.1% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Sapiens International's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Sapiens International has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Sapiens International recorded free cash flow worth 78% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sapiens International has US$186.1m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$79m, being 78% of its EBIT. So is Sapiens International'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 Sapiens International, you may well want to click here to check an interactive graph of its earnings per share history.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.