Seach Medical Group (TLV:SEMG) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Seach Medical Group Ltd (TLV:SEMG) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out 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 ₪6.64m of debt in March 2023, down from ₪10.0m, one year before. But it also has ₪17.7m in cash to offset that, meaning it has ₪11.1m net cash.

How Healthy Is Seach Medical Group's Balance Sheet?

We can see from the most recent balance sheet that Seach Medical Group had liabilities of ₪30.9m falling due within a year, and liabilities of ₪23.5m due beyond that. On the other hand, it had cash of ₪17.7m and ₪23.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪13.6m.

Seach Medical Group has a market capitalization of ₪61.2m, 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. Despite its noteworthy liabilities, Seach Medical Group boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Seach Medical Group will need earnings to service that debt. 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 61%, to ₪140m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Seach Medical Group?

Although Seach Medical Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₪17m. 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. One positive is that Seach Medical Group is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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 example, we've discovered 1 warning sign for Seach Medical Group that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.