Petrotx - Limited Partnership (TLV:PTX) Takes On Some Risk With Its Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Petrotx - Limited Partnership (TLV:PTX) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Petrotx - Limited Partnership Carry?

You can click the graphic below for the historical numbers, but it shows that Petrotx - Limited Partnership had US$5.02m of debt in June 2025, down from US$5.82m, one year before. However, it does have US$899.0k in cash offsetting this, leading to net debt of about US$4.12m.

How Healthy Is Petrotx - Limited Partnership's Balance Sheet?

According to the last reported balance sheet, Petrotx - Limited Partnership had liabilities of US$6.60m due within 12 months, and liabilities of US$7.14m due beyond 12 months. Offsetting this, it had US$899.0k in cash and US$912.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.9m.

This deficit casts a shadow over the US$2.93m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Petrotx - Limited Partnership would probably need a major re-capitalization if its creditors were to demand repayment.

View our latest analysis for Petrotx - Limited Partnership

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Weak interest cover of 0.99 times and a disturbingly high net debt to EBITDA ratio of 5.2 hit our confidence in Petrotx - Limited Partnership like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. One redeeming factor for Petrotx - Limited Partnership is that it turned last year's EBIT loss into a gain of US$902k, over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Petrotx - Limited Partnership 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. Over the most recent year, Petrotx - Limited Partnership recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

On the face of it, Petrotx - Limited Partnership's interest cover left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. We're quite clear that we consider Petrotx - Limited Partnership to be really rather risky, as a result of its balance sheet health. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. Case in point: We've spotted 3 warning signs for Petrotx - Limited Partnership 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.