Does Mydas Real Estate Investments (TLV:MYDS) 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.' 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 Mydas Real Estate Investments Ltd (TLV:MYDS) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Mydas Real Estate Investments

How Much Debt Does Mydas Real Estate Investments Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Mydas Real Estate Investments had ₪137.5m of debt, an increase on ₪116.2m, over one year. However, it also had ₪3.10m in cash, and so its net debt is ₪134.4m.

How Healthy Is Mydas Real Estate Investments' Balance Sheet?

According to the last reported balance sheet, Mydas Real Estate Investments had liabilities of ₪95.4m due within 12 months, and liabilities of ₪50.0m due beyond 12 months. On the other hand, it had cash of ₪3.10m and ₪1.79m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪140.6m.

This deficit casts a shadow over the ₪41.1m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Mydas Real Estate Investments would probably need a major re-capitalization if its creditors were to demand repayment. 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 Mydas Real Estate Investments will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Mydas Real Estate Investments reported revenue of ₪13m, which is a gain of 16%, 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.

Caveat Emptor

Importantly, Mydas Real Estate Investments had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₪1.4m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through ₪13m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for Mydas Real Estate Investments you should be aware of, and 2 of them are a bit 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.