A. Libental Holdings (TLV:LBTL) has debt but no revenue; Should you be worried?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Like many other companies A.Libental Holdings Ltd. (TLV:LBTL) uses debt. But should shareholders worry about its use of debt?

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. When we look at debt levels, we first consider cash and debt levels, together.

See our latest analysis for A. Libental Holdings

What is the net debt of A. Liberal Holdings?

The image below, which you can click on for more details, shows that as of December 2021, A. Libental Holdings had a debt of ₪252.2 million, up from ₪156.4 million in one year. However, he has ₪65.1 million in cash to offset this, resulting in a net debt of around ₪187.2 million.

TASE: LBTL Debt to Equity April 28, 2022

How strong is A. Libental Holdings’ balance sheet?

Zooming in on the latest balance sheet data, we can see that A. Libental Holdings had liabilities of ₪172.6 million due within 12 months and liabilities of ₪146.9 million due beyond. As compensation for these obligations, it had cash of ₪65.1 million as well as receivables valued at ₪27.6 million due within 12 months. It therefore has liabilities totaling £226.9 million more than its cash and short-term receivables, combined.

Given that this deficit is actually larger than the company’s market capitalization of £156.7m, we think shareholders should really be keeping an eye on A’s debt levels. Libental Holdings, like a parent watching their child ride a bike for the first time. In theory, extremely large dilution would be required if the company were forced to repay its debts by raising capital at the current share price. There is no doubt that we learn the most about debt from the balance sheet. But these are the benefits of A. Libental Holdings that will influence balance sheet performance in the future. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

It seems likely that shareholders will be hoping that A. Libental Holdings can advance the business plan significantly before too long, as it has no significant revenue at the moment.

Caveat Emptor

Importantly, A. Libental Holdings posted a loss in earnings before interest and taxes (EBIT) over the past year. Indeed, it lost ₪5.5 million in EBIT. Considering that alongside the liabilities mentioned above, we are nervous about the business. It would have to quickly improve its functioning so that we are interested in it. Not least because it recorded negative free cash flow of ₪18 million in the last twelve months. So suffice it to say that we consider the stock to be risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we have identified 3 warning signs for A. Libental Holdings (1 is a little worrying) you should be aware.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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