We Think Tedea Technological Development and Automation (TLV:TEDE) Has A Fair Chunk Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Tedea Technological Development and Automation Ltd. (TLV:TEDE) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Tedea Technological Development and Automation

How Much Debt Does Tedea Technological Development and Automation Carry?

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. On the flip side, it has ₪2.13m in cash leading to net debt of about ₪3.73m.

How Healthy Is Tedea Technological Development and Automation's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tedea Technological Development and Automation had liabilities of ₪9.29m due within 12 months and liabilities of ₪8.76m due beyond that. On the other hand, it had cash of ₪2.13m and ₪246.0k worth of receivables due within a year. So its liabilities total ₪15.7m more than the combination of its cash and short-term receivables.

Tedea Technological Development and Automation has a market capitalization of ₪36.2m, so it could very likely raise cash to ameliorate 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 you can't view debt in total isolation; since Tedea Technological Development and Automation 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 Tedea Technological Development and Automation wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to ₪605k. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Importantly, Tedea Technological Development and Automation had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₪3.4m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Tedea Technological Development and Automation 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.