Is Mydas Real Estate Investments (TLV:MYDS) Weighed On By Its Debt Load?

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.' 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. Importantly, Mydas Real Estate Investments Ltd (TLV:MYDS) does carry debt. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Mydas Real Estate Investments's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Mydas Real Estate Investments had debt of ₪167.2m, up from ₪129.4m in one year. However, because it has a cash reserve of ₪54.4m, its net debt is less, at about ₪112.8m.

A Look At Mydas Real Estate Investments' Liabilities

The latest balance sheet data shows that Mydas Real Estate Investments had liabilities of ₪101.8m due within a year, and liabilities of ₪73.0m falling due after that. On the other hand, it had cash of ₪54.4m and ₪1.10m worth of receivables due within a year. So its liabilities total ₪119.3m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₪38.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Mydas Real Estate Investments would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mydas Real Estate Investments's earnings that will influence how the balance sheet holds up in the future. 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.

See our latest analysis for Mydas Real Estate Investments

In the last year Mydas Real Estate Investments had a loss before interest and tax, and actually shrunk its revenue by 35%, to ₪12m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Mydas Real Estate Investments's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₪2.8m. 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. Nevertheless, we would not bet on it given that it vaporized ₪12m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for Mydas Real Estate Investments you should be aware of, and 3 of them are a bit unpleasant.

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.