“The biggest investment risk is not price volatility, but whether we suffer a permanent loss of capital,” says Lee Lu, an external fund manager backed by Berkshire Hathaway’s Charlie Munger. . Debt is often incurred when a business goes bankrupt, so it makes sense to consider a company’s balance sheet when considering a company’s risks.Like many other companies Caesarstone Co., Ltd. (NASDAQ:CSTE) uses debt. But is this liability a concern for shareholders?
What are the risks of borrowing?
Generally speaking, debt becomes a real problem only when a company raises capital or cannot easily repay it with its own cash flow. Part of capitalism is the process of ‘creative destruction’ in which failed businesses are ruthlessly liquidated by bankers. But a more common (but still costly) situation is when a company has to dilute its shareholders with a cheap stock price just to manage its debt. That said, the most common situation is when a company manages its debt reasonably well to its advantage. When looking at debt levels, first consider both cash and debt levels together.
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What is Caesarstone’s net debt?
You can click the chart below for historical figures, but as of September 2022 Caesarstone had US$34.8 million in debt, up from US$21.8 million over the course of the year. However, he also holds US$65.2 million in cash, leading to a net cash position of US$30.4 million.
How healthy is Caesarstone’s balance sheet?
According to the latest balance sheet data, Caesarstone has a debt of US$191.8 million, which is due within one year and a debt of US$160.6 million will be paid thereafter. Meanwhile, US$65.2 million in cash and US$122.7 million worth of his receivables were paid within his year. That debt therefore puts him US$164.6 million more than his cash and short-term receivables combined.
This deficit is significant compared to a market capitalization of US$221.3 million, suggesting that shareholders should be careful with Caesarstone’s use of debt. This suggests a significant dilution of shareholders if the company urgently needs to strengthen its balance sheet. It has notable debt, but Caesarstone has more cash than it has, so I’m confident that it can be safely managed.
In fact, Caesarstone’s saving grace is its low debt level. Because his EBIT has fallen 49% in the last 12 months. When it comes to paying off debt, the loss of income is the same as sugary sodas are good for your health. Arguably, we learn the most about debt from the balance sheet. But ultimately the future profitability of the business will determine whether Caesarstone can strengthen its balance sheet over time. So, if you want to know what the experts think, this free report on analyst profit forecasts might be of interest to you.
Finally, the business needs free cash flow to pay off its debt. Accounting profit doesn’t cut it. Caesarstone may have net cash on its balance sheet, but it’s still interesting to see how the business converts earnings before interest and taxes (EBIT) into free cash flow. Manage your debt. Over the past three years, Caesarstone has generated free cash flow equivalent to 8.6% of his EBIT. That limp level of cash conversion undermines the ability to manage and repay debt.
Caesarstone has more liabilities than liquid assets, but also has $30.4 million in net cash. Despite the cash, Caesarstone appears to be struggling with his EBIT growth, so we’re wary of the stock price. Arguably, we learn the most about debt from the balance sheet. Ultimately, however, all companies may have the risk of existing off balance sheets. To do so, you should be aware of the following: 1 warning sign Found in Caesarstone.
After all, if you’re interested in a fast-growing company with a solid balance sheet, check out our list of net cash growth stocks right away.
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