Does Clal Biotechnology Industries (TLV:CBI) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Clal Biotechnology Industries Ltd. (TLV:CBI) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

View our latest analysis for Clal Biotechnology Industries

How Much Debt Does Clal Biotechnology Industries Carry?

You can click the graphic below for the historical numbers, but it shows that Clal Biotechnology Industries had ₪40.2m of debt in September 2021, down from ₪42.7m, one year before. However, it does have ₪84.8m in cash offsetting this, leading to net cash of ₪44.7m.

A Look At Clal Biotechnology Industries' Liabilities

According to the last reported balance sheet, Clal Biotechnology Industries had liabilities of ₪34.7m due within 12 months, and liabilities of ₪77.0m due beyond 12 months. Offsetting these obligations, it had cash of ₪84.8m as well as receivables valued at ₪6.54m due within 12 months. So its liabilities total ₪20.3m more than the combination of its cash and short-term receivables.

Given Clal Biotechnology Industries has a market capitalization of ₪211.4m, 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, Clal Biotechnology Industries 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 Clal Biotechnology Industries's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Clal Biotechnology Industries reported revenue of ₪82m, which is a gain of 14%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Clal Biotechnology Industries?

While Clal Biotechnology Industries lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₪59m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Clal Biotechnology Industries (including 1 which is concerning) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.