Is Caesarstone (NASDAQ:CSTE) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Caesarstone Ltd. (NASDAQ:CSTE) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Caesarstone

How Much Debt Does Caesarstone Carry?

You can click the graphic below for the historical numbers, but it shows that Caesarstone had US$5.89m of debt in September 2024, down from US$7.11m, one year before. However, it does have US$114.1m in cash offsetting this, leading to net cash of US$108.2m.

How Strong Is Caesarstone's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Caesarstone had liabilities of US$142.6m due within 12 months and liabilities of US$128.4m due beyond that. Offsetting this, it had US$114.1m in cash and US$137.7m in receivables that were due within 12 months. So its liabilities total US$19.3m more than the combination of its cash and short-term receivables.

Since publicly traded Caesarstone shares are worth a total of US$147.0m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Caesarstone boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Caesarstone can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Caesarstone had a loss before interest and tax, and actually shrunk its revenue by 20%, to US$474m. To be frank that doesn't bode well.

So How Risky Is Caesarstone?

While Caesarstone lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$37m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Caesarstone that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.