Does Tedea Technological Development and Automation (TLV:TEDE) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Tedea Technological Development and Automation Ltd. (TLV:TEDE) 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 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Tedea Technological Development and Automation

What Is Tedea Technological Development and Automation's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Tedea Technological Development and Automation had debt of ₪5.87m, up from ₪3.26m in one year. However, it does have ₪2.13m in cash offsetting this, leading to net debt of about ₪3.73m.

A Look At Tedea Technological Development and Automation's Liabilities

According to the last reported balance sheet, Tedea Technological Development and Automation had liabilities of ₪9.29m due within 12 months, and liabilities of ₪8.76m due beyond 12 months. On the other hand, it had cash of ₪2.13m and ₪246.0k worth of receivables due within a year. So it has liabilities totalling ₪15.7m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Tedea Technological Development and Automation is worth ₪27.7m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Tedea Technological Development and Automation'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.

Over 12 months, Tedea Technological Development and Automation reported revenue of ₪605k, which is a gain of 33%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Over the last twelve months Tedea Technological Development and Automation produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₪3.4m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₪5.4m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 5 warning signs with Tedea Technological Development and Automation , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.