Is Seach Medical Group (TLV:SEMG) 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.' 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. As with many other companies Seach Medical Group Ltd (TLV:SEMG) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Seach Medical Group

What Is Seach Medical Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Seach Medical Group had ₪5.80m of debt in March 2024, down from ₪6.64m, one year before. However, it does have ₪9.36m in cash offsetting this, leading to net cash of ₪3.56m.

A Look At Seach Medical Group's Liabilities

We can see from the most recent balance sheet that Seach Medical Group had liabilities of ₪24.3m falling due within a year, and liabilities of ₪15.3m due beyond that. On the other hand, it had cash of ₪9.36m and ₪27.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪3.07m.

Of course, Seach Medical Group has a market capitalization of ₪51.9m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Seach Medical Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Seach Medical Group'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.

In the last year Seach Medical Group wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to ₪155m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Seach Medical Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Seach Medical Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₪178k and booked a ₪12m accounting loss. But the saving grace is the ₪3.56m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Seach Medical Group (1 is potentially serious) you should be aware of.

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.