Is Shemen Yielding Real Estate (TLV:SMNR) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Shemen Yielding Real Estate Ltd (TLV:SMNR) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Shemen Yielding Real Estate

What Is Shemen Yielding Real Estate's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Shemen Yielding Real Estate had ₪45.5m of debt, an increase on none, over one year. However, it does have ₪58.4m in cash offsetting this, leading to net cash of ₪12.9m.

How Strong Is Shemen Yielding Real Estate's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shemen Yielding Real Estate had liabilities of ₪73.4m due within 12 months and liabilities of ₪79.4m due beyond that. Offsetting these obligations, it had cash of ₪58.4m as well as receivables valued at ₪6.43m due within 12 months. So its liabilities total ₪88.0m more than the combination of its cash and short-term receivables.

Given Shemen Yielding Real Estate has a market capitalization of ₪742.1m, 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. Despite its noteworthy liabilities, Shemen Yielding Real Estate boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Shemen Yielding Real Estate'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.

In the last year Shemen Yielding Real Estate wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₪9.6m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Shemen Yielding Real Estate?

Although Shemen Yielding Real Estate had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₪346k. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 example, we've discovered 1 warning sign for Shemen Yielding Real Estate that you should be aware of before investing here.

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.