Elad: Cash Quality After the IPO and What Really Sits Inside 2025 Cash Flow

What This Follow-up Is Testing

The main article argued that Elad’s balance sheet improved dramatically after the IPO, but that cash quality still needed a separate read. This follow-up does not ask whether cash exists on the balance sheet. It asks where it really came from, and whether 2025 reflects a new cash engine or a mix of stronger collections, favorable accounting presentation, and a particularly clean year-end snapshot.

To stay disciplined, this piece uses only three frames. The first is reported operating cash flow, NIS 73.9 million. The second is a narrower quality bridge, not a reported metric, that strips out the receivables release and brings the NIS 9.2 million of capitalized development back into the same discussion. The third is all-in cash flexibility, meaning how much cash actually remained after the year’s reported cash uses, including investing activity, total lease-related cash, interest, and short-term debt reduction.

The good news is that this is not fake cash. Collections really did improve, and overdue balances fell sharply. The less comfortable news is that the big 2025 number blends together better collections, a larger share of technology investment sitting below the operating line, and a major balance-sheet reset created by IPO proceeds.

Collections Really Improved, But It Is Still A Working-Capital Release

The core of the story sits in one line: a NIS 35.5 million decline in receivables and accrued income inside the cash-flow statement. That number alone is larger than the entire net profit of the year. So anyone reading the NIS 73.9 million as if it all came from earnings power is missing the single biggest driver of the bridge.

But this should not be oversimplified either. This is not only an accounting effect. There was real collection improvement underneath it. Open billed receivables fell to NIS 72.4 million from NIS 123.0 million, a 41.1% drop. Balances overdue by more than 90 days fell to about NIS 3.9 million from about NIS 13.7 million, and the total overdue balance fell to about NIS 15.7 million from about NIS 36.0 million. The cleanup also shows up by customer type: gross balances against government and public-sector customers fell to NIS 31.7 million from NIS 75.0 million, and balances against financial customers fell to NIS 3.3 million from NIS 18.5 million.

That is the part supporting the thesis. The second part is less clean. At the same time that open billed receivables fell, accrued income rose to NIS 53.0 million from NIS 38.2 million. In plain terms, a larger share of the year ended with revenue recognized but not yet billed. Accrued income rose to 42.3% of gross receivables and accrued income, versus 23.7% a year earlier.

That is the point a first read can miss. On one hand, collections really did improve. On the other, a large part of the positive cash picture was helped by a working-capital release, while a larger share of year-end profit still sat in accrued income. That makes NIS 73.9 million a strong number, but not a sound run-rate assumption yet.

If only the release from receivables and accrued income is stripped out, operating cash flow falls from NIS 73.9 million to NIS 38.4 million. That is still a respectable figure. It is simply far less dramatic.

Capitalized Development Also Sits Inside Cash Quality

The second layer inside 2025 cash flow is technology spending that moved below the operating line. Capitalized development costs rose to NIS 9.243 million from NIS 5.503 million in 2024, and most of the year’s investing cash outflow, NIS 11.847 million, came from that line. This does not automatically mean aggressive accounting. Capitalization is permitted when the company meets the required conditions. But for cash-quality analysis it matters a lot: part of the cash that left the business did not pass through operating cash flow.

That is why wording discipline matters here. There is no maintenance-capex estimate in this piece, and no attempt to invent a new house metric. There is only one analytical question: if the actual cash spent on capitalized development is brought back into the same discussion, does the NIS 73.9 million operating-cash headline still tell the same story? It does not.

After stripping out the release from receivables and accrued income, operating cash flow falls to about NIS 38.4 million. After bringing the NIS 9.243 million of capitalized development into the same bridge, the figure falls to about NIS 29.1 million. That is already much closer to the NIS 27.9 million of net profit. This is not a bearish framing. It is simply a cleaner one.

The analytical implication is straightforward: 2025 cash flow did not come only from profit converting neatly into cash. It also relied on a favorable working-capital swing and on part of product and technology investment being presented below the operating line. Anyone trying to judge the cash-generating power of the existing business needs to hold both ideas at once.

The December 31 Snapshot Was Better Than The Funding Rhythm

The year-end balance sheet looks very clean, and for good reason. Short-term bank credit fell to NIS 6.0 million from NIS 40.9 million. Total utilized credit facilities and guarantees fell to NIS 11.5 million from NIS 52.5 million. Covenant headroom is also very wide. Equity stood at NIS 169.5 million against a NIS 100 million minimum, equity-to-assets at 58% against a 23% minimum, and debt-to-EBITDA at 0.43 against a ceiling of 3.

But the funding story does not end there. The board report shows average short-term credit during 2025 at NIS 26.8 million, about 4.5 times the year-end balance. Near the report date, actual utilized facilities had already moved back up to NIS 31.1 million, including NIS 18.0 million of on-call bank credit. In other words, the December 31 picture was real, but it was not the full operating rhythm of the system.

That matters even more because the key bank facilities are all on-call facilities, renewed annually, and include familiar behavioral restrictions such as negative pledge terms, limits on dividends, and restrictions on change of control or mergers without bank consent. This is not currently a story about tight covenants or heavy collateral. It is a subtler story: the cash position is cleaner, but funding cadence still moves with working capital.

That is exactly why all-in cash flexibility matters more than the year-end cash balance on its own. After NIS 73.9 million of operating cash flow, the company spent NIS 11.8 million on investing activity, NIS 9.467 million of total lease-related cash, NIS 3.623 million of interest, and reduced short-term bank debt by NIS 32.537 million. Before IPO proceeds, only about NIS 16.4 million remained. That is still positive. It is simply far from the impression created by the cash balance alone.

Bottom Line

The right reading of 2025 is not that Elad’s cash flow was weak. It is also not that NIS 73.9 million proves a brand-new cash engine is already in place. The right read sits in between: collections really improved, overdue balances fell sharply, the IPO cleaned up the balance sheet, and covenant headroom is wide. But the same year also included a major release from receivables, a sharp rise in the weight of accrued income, NIS 9.2 million of development spending shifted into investing, and a quick rebound in credit-line usage near the report date.

In other words, Elad’s 2025 cash quality is better than an extreme skeptic would claim, and less clean than the headline operating-cash number suggests on its own. This was a year of financing and working-capital reset, not full proof of a new cash machine.

Current thesis: Elad’s cash position truly improved in 2025, but cash quality depended more on a working-capital reset and IPO support than on proof that the operating engine can already produce clean annual cash flow of NIS 70 million or more.

Counter-thesis: The market may be too harsh, because collections really did improve, overdue balances collapsed, covenant headroom is very wide, and 2025 may simply be the first year in which Elad’s working-capital discipline starts to look more structural.

Why this matters: if 2025 is a new base, Elad can fund growth with far less dependence on rolling bank lines. If it was mainly a cleanup year after the IPO, the market will still need another round of proof before giving full credit to cash quality.

What has to happen next is clear: receivables and accrued income need to remain under control without another unusual release, capitalized development needs to return as revenue or productivity rather than only as investing cash outflow, and credit-line usage needs to stay moderate not only on December 31 but throughout the period.