We Think Golf & Co Group (TLV:GOLF) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Golf & Co Group Ltd (TLV:GOLF) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

View our latest analysis for Golf & Co Group

How Much Debt Does Golf & Co Group Carry?

As you can see below, Golf & Co Group had ₪15.8m of debt at June 2024, down from ₪68.9m a year prior. But on the other hand it also has ₪88.3m in cash, leading to a ₪72.6m net cash position.

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

Zooming in on the latest balance sheet data, we can see that Golf & Co Group had liabilities of ₪266.7m due within 12 months and liabilities of ₪342.4m due beyond that. Offsetting these obligations, it had cash of ₪88.3m as well as receivables valued at ₪97.0m due within 12 months. So it has liabilities totalling ₪423.7m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₪241.6m 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, Golf & Co Group would likely require a major re-capitalisation if it had to pay its creditors today. 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.

Pleasingly, Golf & Co Group is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 528% gain in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is Golf & Co Group'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Golf & Co Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Golf & Co Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Golf & Co Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₪72.6m. The cherry on top was that in converted 543% of that EBIT to free cash flow, bringing in ₪206m. So we don't have any problem with Golf & Co Group's use of debt. 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. For example Golf & Co Group has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.