We Think Imagesat International (I.S.I) (TLV:ISI) Has A Fair Chunk Of Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Imagesat International (I.S.I) Ltd (TLV:ISI) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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.

See our latest analysis for Imagesat International (I.S.I)

What Is Imagesat International (I.S.I)'s Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Imagesat International (I.S.I) had debt of US$52.2m, up from US$41.2m in one year. However, because it has a cash reserve of US$12.7m, its net debt is less, at about US$39.5m.

A Look At Imagesat International (I.S.I)'s Liabilities

Zooming in on the latest balance sheet data, we can see that Imagesat International (I.S.I) had liabilities of US$30.7m due within 12 months and liabilities of US$46.9m due beyond that. On the other hand, it had cash of US$12.7m and US$32.7m worth of receivables due within a year. So its liabilities total US$32.2m more than the combination of its cash and short-term receivables.

Since publicly traded Imagesat International (I.S.I) shares are worth a total of US$233.1m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Imagesat International (I.S.I) can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Imagesat International (I.S.I) reported revenue of US$52m, which is a gain of 41%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Imagesat International (I.S.I) still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$3.9m 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. However, it doesn't help that it burned through US$28m of cash over the last year. So suffice it to say we consider the stock very risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Imagesat International (I.S.I)'s profit, revenue, and operating cashflow have changed over the last few years.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.