Does Ashtrom Group (TLV:ASHG) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Ashtrom Group Ltd. (TLV:ASHG) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Ashtrom Group's Debt?

As you can see below, Ashtrom Group had ₪13.9b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it also had ₪1.29b in cash, and so its net debt is ₪12.6b.

How Healthy Is Ashtrom Group's Balance Sheet?

According to the last reported balance sheet, Ashtrom Group had liabilities of ₪4.72b due within 12 months, and liabilities of ₪11.9b due beyond 12 months. On the other hand, it had cash of ₪1.29b and ₪1.45b worth of receivables due within a year. So its liabilities total ₪13.9b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₪8.33b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Ashtrom Group would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for Ashtrom Group

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Ashtrom Group shareholders face the double whammy of a high net debt to EBITDA ratio (20.3), and fairly weak interest coverage, since EBIT is just 0.88 times the interest expense. The debt burden here is substantial. Fortunately, Ashtrom Group grew its EBIT by 2.3% in the last year, slowly shrinking its debt relative to earnings. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Ashtrom Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Ashtrom Group burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

To be frank both Ashtrom Group's conversion of EBIT to free cash flow and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But at least its EBIT growth rate is not so bad. After considering the datapoints discussed, we think Ashtrom Group has too much debt. While some investors love that sort of risky play, it's certainly not our cup of tea. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Ashtrom Group you should be aware of, and 2 of them are a bit unpleasant.

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.

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