Is Gilat Telecom Global (TLV:GLTL) Weighed On By Its Debt Load?

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. Importantly, Gilat Telecom Global Ltd (TLV:GLTL) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Gilat Telecom Global

What Is Gilat Telecom Global's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Gilat Telecom Global had US$14.0m of debt in December 2022, down from US$20.7m, one year before. However, its balance sheet shows it holds US$14.9m in cash, so it actually has US$877.0k net cash.

A Look At Gilat Telecom Global's Liabilities

Zooming in on the latest balance sheet data, we can see that Gilat Telecom Global had liabilities of US$22.7m due within 12 months and liabilities of US$12.1m due beyond that. On the other hand, it had cash of US$14.9m and US$5.78m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$14.1m.

The deficiency here weighs heavily on the US$4.80m 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. At the end of the day, Gilat Telecom Global would probably need a major re-capitalization if its creditors were to demand repayment. Given that Gilat Telecom Global 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Gilat Telecom Global'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.

In the last year Gilat Telecom Global had a loss before interest and tax, and actually shrunk its revenue by 17%, to US$43m. That's not what we would hope to see.

So How Risky Is Gilat Telecom Global?

Although Gilat Telecom Global had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$8.7m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Gilat Telecom Global (at least 2 which are potentially serious) , 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.