Ya'acobi Brothers Group (YSB) (TLV:YAAC) Is Making Moderate Use 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. As with many other companies Ya'acobi Brothers Group (YSB) Ltd (TLV:YAAC) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

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

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

The image below, which you can click on for greater detail, shows that at December 2022 Ya'acobi Brothers Group (YSB) had debt of ₪140.9m, up from ₪129.0m in one year. On the flip side, it has ₪4.02m in cash leading to net debt of about ₪136.9m.

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

Zooming in on the latest balance sheet data, we can see that Ya'acobi Brothers Group (YSB) had liabilities of ₪180.7m due within 12 months and liabilities of ₪103.8m due beyond that. Offsetting this, it had ₪4.02m in cash and ₪228.0m in receivables that were due within 12 months. So its liabilities total ₪52.5m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₪83.2m, so it does suggest shareholders should keep an eye on Ya'acobi Brothers Group (YSB)'s use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year Ya'acobi Brothers Group (YSB) had a loss before interest and tax, and actually shrunk its revenue by 18%, to ₪308m. That's not what we would hope to see.

Caveat Emptor

Not only did Ya'acobi Brothers Group (YSB)'s revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₪5.2m 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₪39m of cash over the last year. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Ya'acobi Brothers Group (YSB) (of which 2 are a bit unpleasant!) you should know about.

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.

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