Does Cofix Group (TLV:CFX) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that Cofix Group Ltd (TLV:CFX) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cofix Group

How Much Debt Does Cofix Group Carry?

As you can see below, Cofix Group had ₪11.9m of debt at September 2023, down from ₪14.9m a year prior. However, it does have ₪12.9m in cash offsetting this, leading to net cash of ₪1.08m.

How Strong Is Cofix Group's Balance Sheet?

The latest balance sheet data shows that Cofix Group had liabilities of ₪101.7m due within a year, and liabilities of ₪96.2m falling due after that. On the other hand, it had cash of ₪12.9m and ₪16.9m worth of receivables due within a year. So it has liabilities totalling ₪168.0m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₪91.4m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Cofix Group would likely require a major re-capitalisation if it had to pay its creditors today. Cofix Group boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Cofix Group 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.

Over 12 months, Cofix Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Cofix Group?

While Cofix Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₪13m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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. For instance, we've identified 3 warning signs for Cofix Group (1 is a bit concerning) you should be aware of.

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.