Inventory, Cash Flow, and Debt: Where Carasso's Cash Is Actually Getting Stuck

The main article already argued that Carasso's bottleneck moved from the income statement to the balance sheet. This follow-up narrows the question one step further: where exactly cash gets trapped between profit, deliveries, and debt, and why Series Z is a funding answer, not a cash-conversion answer.

The right read is that the cash is not stuck in inventory alone. It is stuck across three linked layers: new vehicles before delivery, leased vehicles after delivery, and the debt that has to keep rolling between them. That is why 2025 ended with NIS 327.1 million of net profit, but only NIS 50.8 million of cash and cash equivalents.

Four points organize the picture:

• The balance sheet absorbed the growth. Inventory, operating-lease vehicles, and short-term and long-term receivables together increased by NIS 2.405 billion between year-end 2024 and year-end 2025.
• Inventory did not only get larger, it also became riskier to carry. The inventory write-down reserve rose to NIS 82.4 million from NIS 39.1 million, and the reserve on new vehicles alone jumped to NIS 50.2 million from NIS 6.2 million.
• Leasing delays realization but does not remove the capital burden. Operating-lease vehicles rose to NIS 3.686 billion, and Pacific ended the year with no unused committed credit lines and roughly NIS 2.014 billion of bank credit in use.
• 2026 opens with refinancing. Series Z raised NIS 500 million, mainly for refinancing existing financial debt and for current operations, proving that debt markets are still open. It did not prove that cash conversion improved.

Where The Cash Is Actually Stuck

The traffic jam sits in three main balance-sheet lines, and all three expanded together:

What matters here is not only the absolute build. It is who funded it. Trade payables rose by NIS 484.2 million and customer advances rose by NIS 59.2 million. Together that is NIS 543.4 million, far less than the NIS 2.405 billion rise in the three cash-absorbing layers above. The gap was bridged mainly through more financial debt. Bank credit and bonds together rose to NIS 7.429 billion from NIS 6.031 billion, an increase of NIS 1.398 billion in one year.

That is the core of the story. Growth was not funded only by suppliers and customer deposits. It was funded through a balance sheet willing to carry more vehicles, more receivables, and more credit exposure, and through debt markets that were still willing to finance the gap.

Inventory Is Not Only Heavy, It Is More Price-Sensitive Now

This is the point that is easiest to miss. On a first read, the eye goes only to quantity: NIS 4.171 billion of inventory, including NIS 3.727 billion of new vehicles. But the real signal sits in the reserve.

The company itself operates with a policy of holding roughly 3 to 6 months of deliveries in new vehicles, and roughly six months of consumption in parts inventory in most cases. In other words, part of this weight is not a one-off mistake. It is a structural choice built into the import-and-distribution model. Because of manufacturing lead times, shipping, expected tax changes, and commercial opportunities, Carasso deliberately carries relatively deep stock.

That is not automatically wrong. It is simply expensive. When the market is moving fast, that stock helps support market share. When pricing or demand shifts, the same stock starts to consume cash and risk capacity.

This is what turns the inventory note from a footnote into an operating warning. The inventory write-down reserve rose to NIS 82.4 million from NIS 39.1 million. More importantly, the reserve on new-vehicle inventory alone rose to NIS 50.2 million from NIS 6.2 million. In other words, almost the entire jump in the reserve came from the layer closest to Carasso's delivery engine itself, not from parts, not from charging equipment, and not from marginal leftover categories.

That says two things at once. First, the stock got larger. Second, the stock became more price-sensitive. Once the reserve on new vehicles rises like this, the message is not only that more units are sitting on the ground. The message is that a bigger portion of those units already requires an accounting cushion against realizable value.

Precision matters here. Not all of this move was organic. The Metro business combination added NIS 162.3 million of inventory at acquisition and also added NIS 15.4 million to the inventory write-down reserve. Later in 2025, an updated fair-value exercise reduced the value of acquired Metro inventory by about NIS 30 million. So part of the added weight came with the acquisition.

But even after that adjustment, the picture does not calm down. If one strips out only the NIS 15.4 million reserve that arrived with the business combination, the closing reserve would still have been roughly NIS 67.1 million, materially above the NIS 39.1 million recorded at the end of 2024. Metro explains part of the increase, not all of it.

That is exactly where inventory links back to debt. As long as new-vehicle stock remains deep, and as long as the reserve on that stock is already climbing, the company needs both cash and financing capacity to wait for the next delivery cycle without resorting to wider discounting and without adding yet another layer of bridge debt.

Leasing Pushes The Bottleneck Out Of Working Capital And Into Non-Current Assets

It is easy to look at leasing and say the problem is mostly accounting. The report explicitly explains that the NIS 1.703 billion working-capital deficit in the leasing activity results from the fact that operating-lease vehicles are classified as non-current assets, while the related liabilities are presented as both current and non-current. The report also adds that a significant portion of that fleet, about one third, may be realized within the next year.

That explanation is correct. But correct in accounting terms does not mean light in cash terms.

Operating-lease vehicles, net, rose to NIS 3.686 billion from NIS 3.168 billion. The fleet owned by the leasing activity, including inventory, stood at about 40 thousand vehicles at year-end 2025 and about 42 thousand vehicles near the report date. The activity itself says it is funded through equity, shareholder loans from the parent, prepaid lease fees, supplier and importer credit, bank financing, and commercial paper. That is exactly the point. The cash does not come back quickly. It moves into a longer loop of leasing, collection, resale, and refinancing.

The single most important figure in this section is not fleet size. It is the state of the funding lines around it. As of December 31, 2025, Pacific had no unused committed bank credit lines, and the leasing activity had roughly NIS 2.014 billion of bank credit outstanding. That sharpens the thesis: leasing does not only explain why working capital looks negative. It also explains why the group still has to live inside an open financing system.

That is why two different statements have to be separated:

• The accounting statement: part of the working-capital deficit is created by the classification of leased vehicles as non-current assets.
• The economic statement: even if the classification creates some distortion, the cash is still sitting in vehicles that need time, financing, and resale capacity before it comes back.

That matters even more because the leasing operation usually buys vehicles against signed customer orders rather than for stock. When it does buy for stock, it does so because prices look attractive or because management fears that a certain model may run out at the importer. In other words, even inside leasing, the same logic survives: capture the opportunity now, finance it on the way.

The 2025 Cash-Flow Bridge Shows That Profit Did Not Become Cash

The sharpest way to see this is not only through the balance sheet, but through the bridge from net profit to operating cash flow.

This was not a year in which profit merely "fell short." It was a year in which the cash-absorption system was larger than net profit and non-cash adjustments combined. Non-cash adjustments added NIS 1.087 billion, but the growth in receivables, inventory, and the leased fleet consumed more than that.

Two cash lines, in particular, tell the whole story:

• inventory build, NIS 1.008 billion of cash use;
• net investment in operating-lease vehicles, NIS 1.158 billion of cash use, after offsetting the decline in leased-vehicle inventory.

That means Carasso's two large vehicle-holding layers, new vehicles before delivery and leased vehicles after delivery, absorbed NIS 2.166 billion of cash together in 2025.

And that is still not the whole story. Finance expense rose to NIS 347.7 million, while cash interest paid reached NIS 277.9 million. At the same time, profit before tax received a NIS 100.1 million boost from net derivative and foreign-exchange gains. That matters because it widens the gap between the accounting line and the cash line. FX and derivatives helped reported profit, but they did not release inventory and did not reduce funding needs.

This is also why the liquidity note reads the way it does. The group ended the year with negative operating cash flow of NIS 799.6 million, negative investing cash flow of NIS 341.4 million, and positive financing cash flow of NIS 1.063 billion. Without that financing line, the year would not have ended with NIS 50.8 million of cash. It would have ended with a much deeper hole.

2026 Opens With Refinancing, Not With A Cash Cushion

If 2025 showed where the cash got stuck, early 2026 shows how Carasso is dealing with it in practice: it went back to the debt market.

In the contractual maturity table at December 31, 2025, the group had NIS 4.540 billion of bank and other credit due within 12 months, NIS 828.2 million of bonds due within 12 months, and NIS 88.6 million of lease liabilities due within 12 months. This is not an immediate liquidity panic signal, but it is a clear reminder that the model still runs on continuous rollover.

The obvious post-balance-sheet response followed quickly:

The issuance structure itself says something important. The tender received 67 orders from classified investors only, all for the full 500 thousand units, and no public orders were received. That is not necessarily negative. It actually shows that institutional debt demand for Carasso is still there. But it does mean that the immediate answer to the liquidity question came from the institutional debt market, not from internally released cash.

The rating report sharpened the same point. S&P Maalot kept the issue at ilAA- and said the rating reflects an expectation that EBIT-to-finance-expense coverage will remain above 2.4x over the next 12 months. In other words, debt markets are still willing to lend because they still see enough earnings cover and enough balance-sheet support.

That matters, but it should be read correctly. Series Z extends duration and buys time. It does not turn inventory into cash. If new-vehicle stock, the lease fleet, and receivables continue to grow faster than internal cash generation, even an open debt window will remain a bridge tool, not a cure.

What Has To Change Now

The first checkpoint: new-vehicle inventory has to come down without another rise in the write-down reserve. If inventory declines but the reserve keeps rising, that would mean the company is releasing stock at weaker economics.

The second checkpoint: Pacific has to show that the fleet can turn over without sending bank-credit usage sharply higher again. The absence of unused committed lines at year-end makes this a real financing test, not just an operational test.

The third checkpoint: short-term debt has to stop rising. Series Z added NIS 500 million, but the group still had NIS 4.540 billion of bank and other credit due within 12 months and another NIS 828.2 million of bonds in that same bucket. If those balances do not start stabilizing or falling, the implication will be that Carasso only delayed the pressure rather than relieved it.

The counter-read is real and should be taken seriously. Management says there are no warning signs, because part of the working-capital deficit is structural to the leasing model, because the group retains a high rating, and because existing funding sources should be sufficient for operations and debt service. This is not a company that currently looks headed toward an immediate liquidity event.

But that still does not answer the quality-of-conversion question. And that is exactly what makes 2026 the proof year. Carasso has already shown that it can source vehicles, sell vehicles, and take market share. It now has to show that it can release the cash that got trapped along the way.

Conclusion

Carasso's cash is not stuck in one place. It is stuck in a chain: first in inventory, then in leased vehicles, and finally in a debt structure that has to keep carrying both. That is why the debate around the company can no longer be settled through deliveries alone.

The good news is that financing is still accessible, covenants remain intact, and the rating stays strong. The less comfortable news is that the 2025 figures still point to dependence on debt rollover rather than to internally released cash. So the critical question for 2026 is no longer whether Carasso can keep growing. It is whether it can grow without making the balance sheet heavier at every step.