David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Salomon A. Angel Ltd. (TLV:ANGL) does use debt in its business. But is this debt a concern to shareholders?
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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Salomon A. Angel
What Is Salomon A. Angel's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2024 Salomon A. Angel had debt of ₪27.7m, up from ₪16.0m in one year. But on the other hand it also has ₪78.2m in cash, leading to a ₪50.5m net cash position.
How Strong Is Salomon A. Angel's Balance Sheet?
We can see from the most recent balance sheet that Salomon A. Angel had liabilities of ₪176.6m falling due within a year, and liabilities of ₪85.8m due beyond that. On the other hand, it had cash of ₪78.2m and ₪118.9m worth of receivables due within a year. So it has liabilities totalling ₪65.2m more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Salomon A. Angel has a market capitalization of ₪144.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Salomon A. Angel also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Salomon A. Angel 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 Salomon A. Angel wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₪569m. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Salomon A. Angel?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Salomon A. Angel had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₪41m and booked a ₪8.3m accounting loss. But at least it has ₪50.5m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 instance, we've identified 1 warning sign for Salomon A. Angel that you should be aware of.
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.
About TASE:ANGL
Adequate balance sheet and slightly overvalued.
