Here's Why Meshulam Levinstein Contracting & Engineering (TLV:LEVI) Is Weighed Down By Its Debt Load

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Meshulam Levinstein Contracting & Engineering Ltd. (TLV:LEVI) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Meshulam Levinstein Contracting & Engineering's Net Debt?

As you can see below, at the end of June 2025, Meshulam Levinstein Contracting & Engineering had ₪1.59b of debt, up from ₪1.41b a year ago. Click the image for more detail. However, it also had ₪211.1m in cash, and so its net debt is ₪1.38b.

How Strong Is Meshulam Levinstein Contracting & Engineering's Balance Sheet?

According to the last reported balance sheet, Meshulam Levinstein Contracting & Engineering had liabilities of ₪705.0m due within 12 months, and liabilities of ₪1.43b due beyond 12 months. Offsetting this, it had ₪211.1m in cash and ₪121.9m in receivables that were due within 12 months. So its liabilities total ₪1.80b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₪1.96b, so it does suggest shareholders should keep an eye on Meshulam Levinstein Contracting & Engineering's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

See our latest analysis for Meshulam Levinstein Contracting & Engineering

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Weak interest cover of 2.2 times and a disturbingly high net debt to EBITDA ratio of 11.4 hit our confidence in Meshulam Levinstein Contracting & Engineering like a one-two punch to the gut. The debt burden here is substantial. More concerning, Meshulam Levinstein Contracting & Engineering saw its EBIT drop by 9.6% in the last twelve months. If that earnings trend continues the company will face an uphill battle to pay off its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Meshulam Levinstein Contracting & Engineering will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, Meshulam Levinstein Contracting & Engineering saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

On the face of it, Meshulam Levinstein Contracting & Engineering's net debt to EBITDA left us tentative about the stock, and its conversion of EBIT to free cash flow was no more enticing than the one empty restaurant on the busiest night of the year. And furthermore, its level of total liabilities also fails to instill confidence. Taking into account all the aforementioned factors, it looks like Meshulam Levinstein Contracting & Engineering has too much debt. That sort of riskiness is ok for some, but it certainly doesn't float our boat. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 5 warning signs with Meshulam Levinstein Contracting & Engineering (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.