Rav-Bariach (08) Industries (TLV:BRIH) Has Debt But No Earnings; Should You Worry?

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 can see that Rav-Bariach (08) Industries Ltd. (TLV:BRIH) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Rav-Bariach (08) Industries had ₪459.4m of debt, an increase on ₪390.9m, over one year. However, because it has a cash reserve of ₪35.7m, its net debt is less, at about ₪423.7m.

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

The latest balance sheet data shows that Rav-Bariach (08) Industries had liabilities of ₪642.6m due within a year, and liabilities of ₪247.4m falling due after that. On the other hand, it had cash of ₪35.7m and ₪263.4m worth of receivables due within a year. So its liabilities total ₪590.9m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₪258.3m 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 definitely think shareholders need to watch this one closely. At the end of the day, Rav-Bariach (08) Industries would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Rav-Bariach (08) Industries 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.

Over 12 months, Rav-Bariach (08) Industries made a loss at the EBIT level, and saw its revenue drop to ₪668m, which is a fall of 8.3%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Rav-Bariach (08) Industries produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₪5.3m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₪25m over the last twelve months. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Rav-Bariach (08) Industries you should be aware of, and 2 of them can't be ignored.

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.