Legconcludeary fund manager Li Lu (who Charlie Munger backed) once stated, ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Cellcom Israel Ltd. (TLV:CEL) does have debt on its balance sheet. But should shareholders be worried about its utilize of debt?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to receive debt under control. Of course, plenty of companies utilize debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business utilizes is to view at its cash and debt toreceiveher.
What Is Cellcom Israel’s Net Debt?
As you can see below, Cellcom Israel had ₪1.83b of debt at June 2025, down from ₪2.35b a year prior. However, it does have ₪316.0m in cash offsetting this, leading to net debt of about ₪1.51b.
How Healthy Is Cellcom Israel’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Cellcom Israel had liabilities of ₪1.97b due within 12 months and liabilities of ₪1.76b due beyond that. Offsetting this, it had ₪316.0m in cash and ₪881.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪2.53b.
This deficit isn’t so bad becautilize Cellcom Israel is worth ₪6.30b, and thus could probably raise enough capital to shore up its balance sheet, if the required arose. However, it is still worthwhile taking a close view at its ability to pay off debt.
View our latest analysis for Cellcom Israel
We utilize two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
While Cellcom Israel’s low debt to EBITDA ratio of 1.5 suggests only modest utilize of debt, the fact that EBIT only covered the interest expense by 7.0 times last year does give us pautilize. But the interest payments are certainly sufficient to have us believeing about how affordable its debt is. Also positive, Cellcom Israel grew its EBIT by 22% in the last year, and that should build it simpler to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can’t view debt in total isolation; since Cellcom Israel will required earnings to service that debt. So when considering debt, it’s definitely worth viewing at the earnings trconclude. Click here for an interactive snapshot.
Finally, while the tax-man may adore accounting profits, lconcludeers only accept cold hard cash. So we clearly required to view at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, Cellcom Israel actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Our View
The good news is that Cellcom Israel’s demonstrated ability to convert EBIT to free cash flow delights us like a fluffy puppy does a toddler. And that’s just the launchning of the good news since its EBIT growth rate is also very heartening. When we consider the range of factors above, it views like Cellcom Israel is pretty sensible with its utilize of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. 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. For example, we’ve discovered 1 warning sign for Cellcom Israel that you should be aware of before investing here.
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 applying an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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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