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.' 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. As with many other companies RoboGroup T.E.K. Ltd. (TLV:ROBO) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, 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 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 December 2022 RoboGroup T.E.K had debt of US$1.84m, up from US$1.29m in one year. However, it also had US$1.66m in cash, and so its net debt is US$175.0k.

A Look At RoboGroup T.E.K's Liabilities

According to the last reported balance sheet, RoboGroup T.E.K had liabilities of US$6.80m due within 12 months, and liabilities of US$5.44m due beyond 12 months. Offsetting this, it had US$1.66m in cash and US$4.44m in receivables that were due within 12 months. So its liabilities total US$6.13m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because RoboGroup T.E.K is worth US$14.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Carrying virtually no net debt, RoboGroup T.E.K has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But it is RoboGroup T.E.K'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, RoboGroup T.E.K saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, RoboGroup T.E.K had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$3.5m. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$5.6m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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 4 warning signs for RoboGroup T.E.K you should be aware of, and 2 of them are a bit concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.