Tikun Olam-Cannbit Pharmaceuticals (TLV: TKUN) Has Huge Debt
Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. ” So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We can see that Tikun Olam-Cannbit Pharmaceuticals Ltd (TLV: TKUN) uses debt in his business. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. That said, the most common situation is where a business 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 flow and debt together.
Check out our latest review for Tikun Olam-Cannbit Pharmaceuticals
What is the net debt of Tikun Olam-Cannbit Pharmaceuticals?
As you can see below, at the end of June 2021, Tikun Olam-Cannbit Pharmaceuticals was 8.77 million yen in debt, up from 1.49 million yen a year ago. Click on the image for more details. However, he also had 6.10 million euros in cash, so his net debt is 2.68 million euros.
A look at the responsibilities of Tikun Olam-Cannbit Pharmaceuticals
We can see from the most recent balance sheet that Tikun Olam-Cannbit Pharmaceuticals had liabilities of 21.7 million yen due within one year and liabilities of 32.5 million yen due beyond. On the other hand, it had cash of 6.10 million and 13.3 million in receivables within one year. Thus, its liabilities exceed the sum of its cash and receivables (short term) by âª 34.8 million.
While that may sound like a lot, it’s not that bad since Tikun Olam-Cannbit Pharmaceuticals has a market cap of 174.0 million yen, and could therefore likely strengthen its balance sheet by raising capital if needed. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; since Tikun Olam-Cannbit Pharmaceuticals will need revenue to pay off this debt. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Year over 12 months, Tikun Olam-Cannbit Pharmaceuticals reported sales of 28 million yen, a gain of 158%, although it reported no profit before interest and taxes. So there is no doubt that shareholders are encouraging growth
Despite revenue growth, Tikun Olam-Cannbit Pharmaceuticals has consistently recorded a loss of earnings before interest and taxes (EBIT) over the past year. Its EBIT loss amounted to 40 million euros. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we think the record is far from up to par, although it could improve over time. Another reason for caution, 47 M of negative free cash flow over the last twelve months have been bled. Suffice it to say, then, that we consider the stock to be very risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. We have identified 5 warning signs with Tikun Olam-Cannbit Pharmaceuticals (at least 2 which are a bit rude), and understanding them should be part of your investment process.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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