Advertisement
U.S. markets close in 4 hours 6 minutes
  • S&P 500

    5,254.72
    +6.23 (+0.12%)
     
  • Dow 30

    39,779.17
    +19.09 (+0.05%)
     
  • Nasdaq

    16,404.15
    +4.63 (+0.03%)
     
  • Russell 2000

    2,131.41
    +17.06 (+0.81%)
     
  • Crude Oil

    82.69
    +1.34 (+1.65%)
     
  • Gold

    2,234.30
    +21.60 (+0.98%)
     
  • Silver

    24.92
    +0.16 (+0.66%)
     
  • EUR/USD

    1.0801
    -0.0028 (-0.26%)
     
  • 10-Yr Bond

    4.1850
    -0.0110 (-0.26%)
     
  • GBP/USD

    1.2626
    -0.0012 (-0.09%)
     
  • USD/JPY

    151.3260
    +0.0800 (+0.05%)
     
  • Bitcoin USD

    71,388.80
    +2,346.26 (+3.40%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,963.67
    +31.69 (+0.40%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Is Shekel Brainweigh (ASX:SBW) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Shekel Brainweigh Ltd. (ASX:SBW) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Shekel Brainweigh

How Much Debt Does Shekel Brainweigh Carry?

The chart below, which you can click on for greater detail, shows that Shekel Brainweigh had US$4.17m in debt in June 2019; about the same as the year before. But it also has US$5.10m in cash to offset that, meaning it has US$928.0k net cash.

ASX:SBW Historical Debt, October 16th 2019
ASX:SBW Historical Debt, October 16th 2019

How Healthy Is Shekel Brainweigh's Balance Sheet?

We can see from the most recent balance sheet that Shekel Brainweigh had liabilities of US$8.31m falling due within a year, and liabilities of US$1.93m due beyond that. Offsetting these obligations, it had cash of US$5.10m as well as receivables valued at US$6.77m due within 12 months. So it actually has US$1.62m more liquid assets than total liabilities.

This short term liquidity is a sign that Shekel Brainweigh could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Shekel Brainweigh has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Shekel Brainweigh 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.

Over 12 months, Shekel Brainweigh saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Shekel Brainweigh?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Shekel Brainweigh had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through US$2.2m of cash and made a loss of US$3.3m. Given it only has net cash of US$928.0k, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like Shekel Brainweigh I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

Advertisement