Is Inter Industries Plus (TLV:ININ) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Inter Industries Plus Ltd (TLV:ININ) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Inter Industries Plus

How Much Debt Does Inter Industries Plus Carry?

As you can see below, Inter Industries Plus had ₪38.9m of debt at September 2021, down from ₪65.1m a year prior. But on the other hand it also has ₪41.6m in cash, leading to a ₪2.68m net cash position.

How Strong Is Inter Industries Plus' Balance Sheet?

We can see from the most recent balance sheet that Inter Industries Plus had liabilities of ₪209.3m falling due within a year, and liabilities of ₪49.0m due beyond that. Offsetting these obligations, it had cash of ₪41.6m as well as receivables valued at ₪208.5m due within 12 months. So it has liabilities totalling ₪8.19m more than its cash and near-term receivables, combined.

Given Inter Industries Plus has a market capitalization of ₪154.0m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Inter Industries Plus boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Inter Industries Plus 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 Inter Industries Plus wasn't profitable at an EBIT level, but managed to grow its revenue by 25%, to ₪402m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Inter Industries Plus?

Although Inter Industries Plus had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₪7.4m. 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. One positive is that Inter Industries Plus is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Inter Industries Plus you should be aware of, and 1 of them is a bit unpleasant.

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.