Does RoboGroup T.E.K (TLV:ROBO) Have A Healthy Balance Sheet?

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.' 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. Importantly, RoboGroup T.E.K. Ltd. (TLV:ROBO) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for RoboGroup T.E.K

How Much Debt Does RoboGroup T.E.K Carry?

The image below, which you can click on for greater detail, shows that at June 2022 RoboGroup T.E.K had debt of US$1.87m, up from US$918.0k in one year. However, its balance sheet shows it holds US$2.02m in cash, so it actually has US$150.0k net cash.

How Strong Is RoboGroup T.E.K's Balance Sheet?

According to the last reported balance sheet, RoboGroup T.E.K had liabilities of US$9.86m due within 12 months, and liabilities of US$5.32m due beyond 12 months. Offsetting these obligations, it had cash of US$2.02m as well as receivables valued at US$11.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.96m.

Of course, RoboGroup T.E.K has a market capitalization of US$21.6m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, RoboGroup T.E.K boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since RoboGroup T.E.K 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, RoboGroup T.E.K reported revenue of US$19m, which is a gain of 30%, 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.

So How Risky Is RoboGroup T.E.K?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months RoboGroup T.E.K lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$8.7m and booked a US$1.7m accounting loss. But at least it has US$150.0k on the balance sheet to spend on growth, near-term. RoboGroup T.E.K's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for RoboGroup T.E.K (of which 1 is concerning!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.