Is Caesarstone (NASDAQ:CSTE) Taking on Too Much Debt?

External fund manager Li Lu, backed by Berkshire Hathaway’s Charlie Munger, 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.” When you think about it, how If a particular stock is risky, it may be obvious that you need to consider debt, because too much debt can sink a company. As with many other companies Caesarstone Ltd. (NASDAQ:CSTE) uses debt. But the more important question is: How much risk does this debt pose?

When is debt a problem?

Debt helps a business until it has difficulty paying it off, whether with new capital or free cash flow. If the company can’t meet its legal obligations to pay down debt, shareholders could end up with nothing. However, it is more common (but still costly) for a company to have to issue shares at bargain prices, resulting in permanent shareholder dilution, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for Caesarstone

How much debt does Caesarstone have?

You can click on the graphic below to see the historical numbers. However, it shows that Caesarstone had $5.89 million in debt as of September 2024, compared to $7.11 million a year earlier. However, this is offset by US$114.1m in cash, 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 that were due beyond this. Offsetting this, it had US$114.1m in cash and US$137.7m in receivables 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 have a total value of $147.0 million, this level of liabilities is unlikely to pose much of a threat. But there are enough liabilities that we would definitely recommend that shareholders keep an eye on the balance sheet in the future. Despite its significant liabilities, Caesarstone has net cash, so it’s fair to say that the company doesn’t have a heavy debt load! When analyzing debt levels, the balance sheet is the obvious place to start. Ultimately, however, the company’s future profitability will determine whether Caesarstone can strengthen its balance sheet over time. So if you’re focused on the future, you can look at that free Report with analyst profit forecasts.

Last year, Caesarstone posted a loss before interest and taxes and actually saw its revenue shrink by 20% to $474 million. To be honest, this doesn’t bode well.

How risky is Caesarstone?

While Caesarstone lost money at the earnings before interest and taxes (EBIT) level, the company actually generated positive free cash flow of $37 million. So even though it is loss-making, it doesn’t seem to have too much balance sheet risk in the near term if you keep an eye on net cash. With revenue growth uninspiring, we would definitely need to achieve positive EBIT before we could get much enthusiasm for this business. When analyzing 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 example, we identified 1 warning sign for Caesarstone what 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 immediately.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.