We Think RoboGroup T.E.K (TLV:ROBO) 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. Importantly, RoboGroup T.E.K. Ltd. (TLV:ROBO) does carry debt. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is RoboGroup T.E.K's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 RoboGroup T.E.K had debt of US$5.25m, up from US$3.28m in one year. However, it also had US$1.09m in cash, and so its net debt is US$4.16m.

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

The latest balance sheet data shows that RoboGroup T.E.K had liabilities of US$8.94m due within a year, and liabilities of US$3.37m falling due after that. Offsetting these obligations, it had cash of US$1.09m as well as receivables valued at US$5.73m due within 12 months. So it has liabilities totalling US$5.49m more than its cash and near-term receivables, combined.

This deficit isn't so bad because RoboGroup T.E.K is worth US$16.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since RoboGroup T.E.K will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

Check out our latest analysis for RoboGroup T.E.K

In the last year RoboGroup T.E.K had a loss before interest and tax, and actually shrunk its revenue by 32%, to US$8.8m. That makes us nervous, to say the least.

Caveat Emptor

While RoboGroup T.E.K's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable US$5.5m 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. Another cause for caution is that is bled US$3.1m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for RoboGroup T.E.K (of which 3 are a bit concerning!) 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.