Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Modiin Energy-Limited Partnership (TLV:MDIN) makes use of debt. But should shareholders be worried about its use of debt?
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 step when considering a company's debt levels is to consider its cash and debt together.
What Is Modiin Energy-Limited Partnership's Net Debt?
As you can see below, at the end of September 2025, Modiin Energy-Limited Partnership had US$83.1m of debt, up from US$61.4m a year ago. Click the image for more detail. However, it does have US$19.3m in cash offsetting this, leading to net debt of about US$63.8m.
How Strong Is Modiin Energy-Limited Partnership's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Modiin Energy-Limited Partnership had liabilities of US$8.71m due within 12 months and liabilities of US$80.0m due beyond that. Offsetting these obligations, it had cash of US$19.3m as well as receivables valued at US$2.39m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$67.0m.
The deficiency here weighs heavily on the US$8.12m 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'd watch its balance sheet closely, without a doubt. After all, Modiin Energy-Limited Partnership would likely require a major re-capitalisation if it had to pay its creditors today.
See our latest analysis for Modiin Energy-Limited Partnership
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Weak interest cover of 1.0 times and a disturbingly high net debt to EBITDA ratio of 5.3 hit our confidence in Modiin Energy-Limited Partnership like a one-two punch to the gut. The debt burden here is substantial. Looking on the bright side, Modiin Energy-Limited Partnership boosted its EBIT by a silky 64% in the last year. Like a mother's loving embrace of a newborn that sort of growth builds resilience, putting the company in a stronger position to manage 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 Modiin Energy-Limited Partnership 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, a company can only pay off debt with cold hard cash, not accounting profits. So it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, Modiin Energy-Limited Partnership burned a lot of cash. 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, Modiin Energy-Limited Partnership's conversion of EBIT to free cash flow left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at growing its EBIT; that's encouraging. We're quite clear that we consider Modiin Energy-Limited Partnership to be really rather risky, as a result of its balance sheet health. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. To that end, you should be aware of the 2 warning signs we've spotted with Modiin Energy-Limited Partnership .
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.