Is Tikun Olam-Cannbit Pharmaceuticals (TLV:TKUN) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Tikun Olam-Cannbit Pharmaceuticals Ltd (TLV:TKUN) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Tikun Olam-Cannbit Pharmaceuticals

What Is Tikun Olam-Cannbit Pharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Tikun Olam-Cannbit Pharmaceuticals had ₪11.8m of debt, an increase on ₪8.93m, over one year. But on the other hand it also has ₪13.4m in cash, leading to a ₪1.59m net cash position.

How Strong Is Tikun Olam-Cannbit Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, Tikun Olam-Cannbit Pharmaceuticals had liabilities of ₪23.0m due within 12 months, and liabilities of ₪23.0m due beyond 12 months. Offsetting this, it had ₪13.4m in cash and ₪10.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪22.4m.

Given Tikun Olam-Cannbit Pharmaceuticals has a market capitalization of ₪113.5m, 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, Tikun Olam-Cannbit Pharmaceuticals 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 Tikun Olam-Cannbit Pharmaceuticals'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 Tikun Olam-Cannbit Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 71%, to ₪37m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Tikun Olam-Cannbit Pharmaceuticals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Tikun Olam-Cannbit Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₪33m of cash and made a loss of ₪33m. With only ₪1.59m on the balance sheet, it would appear that its going to need to raise capital again soon. Tikun Olam-Cannbit Pharmaceuticals's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 5 warning signs for Tikun Olam-Cannbit Pharmaceuticals you should be aware of, and 2 of them are potentially serious.

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.