Would Clal Biotechnology Industries (TLV:CBI) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Clal Biotechnology Industries Ltd. (TLV:CBI) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Clal Biotechnology Industries's Net Debt?

The image below, which you can click on for greater detail, shows that Clal Biotechnology Industries had debt of ₪17.2m at the end of June 2025, a reduction from ₪21.7m over a year. However, because it has a cash reserve of ₪1.61m, its net debt is less, at about ₪15.6m.

A Look At Clal Biotechnology Industries' Liabilities

We can see from the most recent balance sheet that Clal Biotechnology Industries had liabilities of ₪18.1m falling due within a year, and liabilities of ₪1.47m due beyond that. Offsetting this, it had ₪1.61m in cash and ₪463.0k in receivables that were due within 12 months. So it has liabilities totalling ₪17.5m more than its cash and near-term receivables, combined.

Clal Biotechnology Industries has a market capitalization of ₪56.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Check out our latest analysis for Clal Biotechnology Industries

Since Clal Biotechnology Industries doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

Caveat Emptor

Importantly, Clal Biotechnology Industries had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₪5.4m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₪5.4m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. We've identified 4 warning signs with Clal Biotechnology Industries (at least 3 which are concerning) , and understanding them should be part of your investment process.

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.