Does Israel Land Development - Urban Renewal (TLV:ILDR) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Israel Land Development - Urban Renewal Ltd (TLV:ILDR) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Israel Land Development - Urban Renewal

What Is Israel Land Development - Urban Renewal's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Israel Land Development - Urban Renewal had debt of ₪34.7m, up from ₪19.8m in one year. However, it does have ₪17.7m in cash offsetting this, leading to net debt of about ₪17.1m.

How Strong Is Israel Land Development - Urban Renewal's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Israel Land Development - Urban Renewal had liabilities of ₪46.4m due within 12 months and liabilities of ₪32.3m due beyond that. Offsetting this, it had ₪17.7m in cash and ₪440.0k in receivables that were due within 12 months. So its liabilities total ₪60.5m more than the combination of its cash and short-term receivables.

Of course, Israel Land Development - Urban Renewal has a market capitalization of ₪482.1m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Israel Land Development - Urban Renewal 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.

In the last year Israel Land Development - Urban Renewal managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

Caveat Emptor

Over the last twelve months Israel Land Development - Urban Renewal produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₪13m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₪4.9m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Israel Land Development - Urban Renewal , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.