We Think Bet Shemesh Engines Holdings (1997) (TLV:BSEN) Has A Fair Chunk Of Debt

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.' 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 Bet Shemesh Engines Holdings (1997) Ltd (TLV:BSEN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Bet Shemesh Engines Holdings (1997)

What Is Bet Shemesh Engines Holdings (1997)'s Debt?

As you can see below, Bet Shemesh Engines Holdings (1997) had US$37.3m of debt at September 2024, down from US$56.5m a year prior. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Bet Shemesh Engines Holdings (1997)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bet Shemesh Engines Holdings (1997) had liabilities of US$96.1m due within 12 months and liabilities of US$39.2m due beyond that. Offsetting this, it had US$180.0k in cash and US$58.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$77.1m.

Of course, Bet Shemesh Engines Holdings (1997) has a market capitalization of US$1.09b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Bet Shemesh Engines Holdings (1997)'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.

In the last year Bet Shemesh Engines Holdings (1997) wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$252m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Bet Shemesh Engines Holdings (1997) managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost US$22m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Surprisingly, we note that it actually reported positive free cash flow of US$28m and a profit of US$30m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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. Be aware that Bet Shemesh Engines Holdings (1997) is showing 4 warning signs in our investment analysis , you should know about...

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.