Is Rav-Bariach (08) Industries (TLV:BRIH) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest 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. As with many other companies Rav-Bariach (08) Industries Ltd. (TLV:BRIH) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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, 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.

View our latest analysis for Rav-Bariach (08) Industries

What Is Rav-Bariach (08) Industries's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Rav-Bariach (08) Industries had debt of ₪458.5m, up from ₪408.3m in one year. On the flip side, it has ₪31.7m in cash leading to net debt of about ₪426.7m.

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A Look At Rav-Bariach (08) Industries' Liabilities

We can see from the most recent balance sheet that Rav-Bariach (08) Industries had liabilities of ₪438.4m falling due within a year, and liabilities of ₪457.2m due beyond that. On the other hand, it had cash of ₪31.7m and ₪277.0m worth of receivables due within a year. So it has liabilities totalling ₪586.9m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₪295.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Rav-Bariach (08) Industries would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Rav-Bariach (08) Industries's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Rav-Bariach (08) Industries made a loss at the EBIT level, and saw its revenue drop to ₪645m, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

While Rav-Bariach (08) Industries's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₪6.8m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through ₪23m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Rav-Bariach (08) Industries (1 is a bit concerning) you should be aware of.

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 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.