Averbuch Formica Center (TLV:AVER) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Averbuch Formica Center Ltd. (TLV:AVER) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Averbuch Formica Center Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Averbuch Formica Center had ₪11.6m of debt, an increase on ₪11.0m, over one year. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Averbuch Formica Center's Balance Sheet?

We can see from the most recent balance sheet that Averbuch Formica Center had liabilities of ₪12.1m falling due within a year, and liabilities of ₪10.4m due beyond that. Offsetting these obligations, it had cash of ₪225.0k as well as receivables valued at ₪9.69m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪12.5m.

Since publicly traded Averbuch Formica Center shares are worth a total of ₪77.3m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Averbuch Formica Center will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend .

View our latest analysis for Averbuch Formica Center

In the last year Averbuch Formica Center had a loss before interest and tax, and actually shrunk its revenue by 19%, to ₪14m. We would much prefer see growth.

Caveat Emptor

Not only did Averbuch Formica Center's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₪2.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₪240k of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Case in point: We've spotted 4 warning signs for Averbuch Formica Center you should be aware of, and 2 of them make us uncomfortable.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.