Maytronics (TLV: MTRN) seems to use debt rather sparingly

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Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. We can see that Maytronics Ltd. (TLV: MTRN) uses debt in its business. But should shareholders be concerned about its use of debt?

What risk does debt entail?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest review for Maytronics

How much debt does Maytronics have?

You can click on the graph below for historical figures, but it shows that Maytronics had 213.1 million yen in debt in June 2021, up from 225.7 million yen a year earlier. But on the other hand, it also has 286.6 million yen in cash, which leads to a net cash position of 73.4 million yen.

TASE: History of debt to equity MTRN August 24, 2021

How healthy is Maytronics’ track record?

We can see from the most recent balance sheet that Maytronics had a liability of 528.6 million yen due within one year and a liability of 170.8 million yen due beyond. In return, he had 286.6 million in cash and 366.8 million in receivables due within 12 months. It therefore has liabilities totaling 46.1 million euros more than its combined cash and short-term receivables.

Considering the size of Maytronics, it appears that its liquid assets are well balanced with its total liabilities. So the company ₪ 8.10b is very unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. Despite its notable liabilities, Maytronics has a net cash flow, so it’s fair to say that it doesn’t have a heavy debt load!

On top of that, we are happy to report that Maytronics has increased its EBIT by 62%, reducing the specter of future debt repayments. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of Maytronics that will influence the way the balance sheet is maintained in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.

Finally, a business can only pay off its debts with hard cash, not with book profits. Maytronics may have net cash on the balance sheet, but it’s always interesting to consider how well the business converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and capacity. to manage debt. Over the past three years, Maytronics has recorded free cash flow of 62% of its EBIT, which is close to normal given that free cash flow excludes interest and taxes. This hard cash allows him to reduce his debt whenever he wants.

In summary

While it always makes sense to look at a company’s total liabilities, it is very reassuring that Maytronics has 73.4 million yen in net cash. And it impressed us with its 62% EBIT growth compared to last year. So is Maytronics’ debt a risk? It does not seem to us. On top of most other metrics, we think it’s important to track how quickly earnings per share are growing, if at all. If you have understood this as well, you are in luck because today you can check out this interactive historical earnings per share chart of Maytronics for free.

At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

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