Retailors (TLV:RTLS) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Retailors Ltd (TLV:RTLS) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Retailors's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Retailors had ₪347.4m of debt, an increase on ₪138.2m, over one year. However, it does have ₪391.7m in cash offsetting this, leading to net cash of ₪44.3m.

A Look At Retailors' Liabilities

According to the last reported balance sheet, Retailors had liabilities of ₪796.7m due within 12 months, and liabilities of ₪1.62b due beyond 12 months. On the other hand, it had cash of ₪391.7m and ₪195.2m worth of receivables due within a year. So it has liabilities totalling ₪1.83b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of ₪3.00b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Retailors boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Retailors

We saw Retailors grow its EBIT by 3.0% in the last twelve months. Whilst that hardly knocks our socks off it is a positive when it comes to debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Retailors'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. While Retailors has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Retailors recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While Retailors does have more liabilities than liquid assets, it also has net cash of ₪44.3m. And it impressed us with free cash flow of ₪38m, being 75% of its EBIT. So we don't have any problem with Retailors'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. Be aware that Retailors is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.