Does Golf & Co Group (TLV:GOLF) 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Golf & Co Group Ltd (TLV:GOLF) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Golf & Co Group

What Is Golf & Co Group's Debt?

The image below, which you can click on for greater detail, shows that Golf & Co Group had debt of ₪73.4m at the end of December 2023, a reduction from ₪92.3m over a year. However, its balance sheet shows it holds ₪89.6m in cash, so it actually has ₪16.2m net cash.

How Healthy Is Golf & Co Group's Balance Sheet?

The latest balance sheet data shows that Golf & Co Group had liabilities of ₪329.7m due within a year, and liabilities of ₪328.1m falling due after that. On the other hand, it had cash of ₪89.6m and ₪119.9m worth of receivables due within a year. So its liabilities total ₪448.3m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₪135.1m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Golf & Co Group would probably need a major re-capitalization if its creditors were to demand repayment. Given that Golf & Co Group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. 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 Golf & Co Group 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.

In the last year Golf & Co Group had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₪852m. We would much prefer see growth.

So How Risky Is Golf & Co Group?

While Golf & Co Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow ₪172m. 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. Given the lack of transparency around future revenue (and cashflow), we're nervous about this one, until it makes its first big sales. To us, it is a high risk play. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Golf & Co Group (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.