Ashdod Refinery (TLV:ARF) Has No Shortage Of Debt

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.' 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 can see that Ashdod Refinery Ltd (TLV:ARF) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Ashdod Refinery's Debt?

As you can see below, at the end of June 2025, Ashdod Refinery had US$250.0m of debt, up from US$192.0m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$256.0m in cash, so it actually has US$6.00m net cash.

How Strong Is Ashdod Refinery's Balance Sheet?

We can see from the most recent balance sheet that Ashdod Refinery had liabilities of US$720.0m falling due within a year, and liabilities of US$291.0m due beyond that. Offsetting these obligations, it had cash of US$256.0m as well as receivables valued at US$205.0m due within 12 months. So its liabilities total US$550.0m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$233.8m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Ashdod Refinery would probably need a major re-capitalization if its creditors were to demand repayment. Given that Ashdod Refinery has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

Check out our latest analysis for Ashdod Refinery

Importantly, Ashdod Refinery's EBIT fell a jaw-dropping 68% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ashdod Refinery's earnings that will influence how the balance sheet holds up in the future. 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. Ashdod Refinery may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Ashdod Refinery 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.

Summing Up

Although Ashdod Refinery's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$6.00m. Unfortunately, though, both its struggle level of total liabilities and its EBIT growth rate leave us concerned about Ashdod Refinery So even though it has net cash, we do think the business has some risks worth watching. 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. For instance, we've identified 1 warning sign for Ashdod Refinery that you should be aware of.

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.