Is Upsellon Brands Holdings (TLV:UPSL) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Upsellon Brands Holdings Ltd (TLV:UPSL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Upsellon Brands Holdings's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Upsellon Brands Holdings had debt of US$1.86m, up from US$465.0k in one year. However, it does have US$1.21m in cash offsetting this, leading to net debt of about US$648.0k.

How Strong Is Upsellon Brands Holdings' Balance Sheet?

According to the last reported balance sheet, Upsellon Brands Holdings had liabilities of US$2.93m due within 12 months, and liabilities of US$145.0k due beyond 12 months. Offsetting this, it had US$1.21m in cash and US$1.26m in receivables that were due within 12 months. So it has liabilities totalling US$597.0k more than its cash and near-term receivables, combined.

Given Upsellon Brands Holdings has a market capitalization of US$3.66m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Upsellon Brands Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

View our latest analysis for Upsellon Brands Holdings

In the last year Upsellon Brands Holdings had a loss before interest and tax, and actually shrunk its revenue by 13%, to US$13m. That's not what we would hope to see.

Caveat Emptor

While Upsellon Brands Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable US$1.6m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$429k 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Upsellon Brands Holdings that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.