Yacobi Brothers Group (YSB) (TLV:YACO) Has Debt But No Earnings; Should You Worry?

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. We note that Yacobi Brothers Group (YSB) Ltd (TLV:YACO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Yacobi Brothers Group (YSB)'s Debt?

As you can see below, at the end of December 2024, Yacobi Brothers Group (YSB) had ₪148.7m of debt, up from ₪139.7m a year ago. Click the image for more detail. On the flip side, it has ₪3.65m in cash leading to net debt of about ₪145.1m.

How Strong Is Yacobi Brothers Group (YSB)'s Balance Sheet?

We can see from the most recent balance sheet that Yacobi Brothers Group (YSB) had liabilities of ₪257.7m falling due within a year, and liabilities of ₪55.8m due beyond that. On the other hand, it had cash of ₪3.65m and ₪193.6m worth of receivables due within a year. So it has liabilities totalling ₪116.2m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's ₪100.3m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 Yacobi Brothers Group (YSB) 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 .

See our latest analysis for Yacobi Brothers Group (YSB)

In the last year Yacobi Brothers Group (YSB) had a loss before interest and tax, and actually shrunk its revenue by 9.0%, to ₪314m. We would much prefer see growth.

Caveat Emptor

Importantly, Yacobi Brothers Group (YSB) had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₪3.7m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₪6.1m over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Yacobi Brothers Group (YSB) you should be aware of, and 2 of them are significant.

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.