Does Gold Bond Group (TLV:GOLD) Have A Healthy Balance Sheet?

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.' 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, The Gold Bond Group Ltd. (TLV:GOLD) does carry debt. But the more important question is: how much risk is that debt creating?

We've discovered 1 warning sign about Gold Bond Group. View them for free.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Gold Bond Group Carry?

The image below, which you can click on for greater detail, shows that Gold Bond Group had debt of ₪27.5m at the end of December 2024, a reduction from ₪32.5m over a year. However, its balance sheet shows it holds ₪85.3m in cash, so it actually has ₪57.8m net cash.

How Healthy Is Gold Bond Group's Balance Sheet?

We can see from the most recent balance sheet that Gold Bond Group had liabilities of ₪48.0m falling due within a year, and liabilities of ₪185.3m due beyond that. Offsetting these obligations, it had cash of ₪85.3m as well as receivables valued at ₪54.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪93.2m.

Given Gold Bond Group has a market capitalization of ₪798.6m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Gold Bond Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Gold Bond Group

In addition to that, we're happy to report that Gold Bond Group has boosted its EBIT by 56%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is Gold Bond Group'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. Gold Bond Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Gold Bond Group actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Gold Bond Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₪57.8m. The cherry on top was that in converted 127% of that EBIT to free cash flow, bringing in ₪31m. So we don't think Gold Bond Group's use of debt is 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 1 warning sign with Gold Bond Group , 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.