Partner Communications (TLV:PTNR) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Partner Communications Company Ltd. (TLV:PTNR) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Partner Communications's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Partner Communications had ₪946.0m of debt in March 2025, down from ₪1.17b, one year before. However, it does have ₪552.0m in cash offsetting this, leading to net debt of about ₪394.0m.

How Strong Is Partner Communications' Balance Sheet?

We can see from the most recent balance sheet that Partner Communications had liabilities of ₪1.29b falling due within a year, and liabilities of ₪1.32b due beyond that. Offsetting this, it had ₪552.0m in cash and ₪690.0m in receivables that were due within 12 months. So its liabilities total ₪1.36b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Partner Communications has a market capitalization of ₪4.22b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt.

View our latest analysis for Partner Communications

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Partner Communications's net debt is only 0.50 times its EBITDA. And its EBIT easily covers its interest expense, being 21.4 times the size. So we're pretty relaxed about its super-conservative use of debt. In addition to that, we're happy to report that Partner Communications has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Partner Communications will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Partner Communications actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

The good news is that Partner Communications's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! Overall, we don't think Partner Communications is taking any bad risks, as its debt load seems modest. So the balance sheet looks pretty healthy, to us. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Partner Communications's dividend history, without delay!

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.