We Think Ya'acobi Brothers Group (YSB) (TLV:YAAC) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Ya'acobi Brothers Group (YSB) Ltd (TLV:YAAC) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ya'acobi Brothers Group (YSB)

How Much Debt Does Ya'acobi Brothers Group (YSB) Carry?

As you can see below, at the end of March 2023, Ya'acobi Brothers Group (YSB) had ₪145.6m of debt, up from ₪131.4m a year ago. Click the image for more detail. However, because it has a cash reserve of ₪9.44m, its net debt is less, at about ₪136.2m.

A Look At Ya'acobi Brothers Group (YSB)'s Liabilities

According to the last reported balance sheet, Ya'acobi Brothers Group (YSB) had liabilities of ₪172.9m due within 12 months, and liabilities of ₪106.4m due beyond 12 months. On the other hand, it had cash of ₪9.44m and ₪229.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪40.3m.

While this might seem like a lot, it is not so bad since Ya'acobi Brothers Group (YSB) has a market capitalization of ₪101.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Ya'acobi Brothers Group (YSB) 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, Ya'acobi Brothers Group (YSB) made a loss at the EBIT level, and saw its revenue drop to ₪311m, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

While Ya'acobi Brothers Group (YSB)'s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₪206k. 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. However, it doesn't help that it burned through ₪31m of cash over the last year. So suffice it to say we consider the stock very risky. 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. To that end, you should learn about the 5 warning signs we've spotted with Ya'acobi Brothers Group (YSB) (including 1 which is a bit unpleasant) .

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.