Is Dan Hotels (TLV:DANH) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Dan Hotels Ltd (TLV:DANH) does carry debt. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Dan Hotels's Net Debt?

The image below, which you can click on for greater detail, shows that Dan Hotels had debt of ₪489.3m at the end of June 2025, a reduction from ₪514.6m over a year. On the flip side, it has ₪29.0m in cash leading to net debt of about ₪460.3m.

How Healthy Is Dan Hotels' Balance Sheet?

According to the last reported balance sheet, Dan Hotels had liabilities of ₪798.0m due within 12 months, and liabilities of ₪424.2m due beyond 12 months. On the other hand, it had cash of ₪29.0m and ₪266.0m worth of receivables due within a year. So it has liabilities totalling ₪927.2m more than its cash and near-term receivables, combined.

Dan Hotels has a market capitalization of ₪2.74b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off 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 Dan Hotels 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.

See our latest analysis for Dan Hotels

Over 12 months, Dan Hotels made a loss at the EBIT level, and saw its revenue drop to ₪1.4b, which is a fall of 5.9%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Dan Hotels produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₪7.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₪21m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Dan Hotels .

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.