We Think Albaad Massuot Yitzhak (TLV:ALBA) Is Taking Some Risk With Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 note that Albaad Massuot Yitzhak Ltd (TLV:ALBA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Albaad Massuot Yitzhak's Debt?

The image below, which you can click on for greater detail, shows that Albaad Massuot Yitzhak had debt of ₪439.6m at the end of June 2025, a reduction from ₪514.9m over a year. However, it does have ₪9.41m in cash offsetting this, leading to net debt of about ₪430.2m.

A Look At Albaad Massuot Yitzhak's Liabilities

The latest balance sheet data shows that Albaad Massuot Yitzhak had liabilities of ₪650.0m due within a year, and liabilities of ₪412.0m falling due after that. Offsetting this, it had ₪9.41m in cash and ₪262.7m in receivables that were due within 12 months. So it has liabilities totalling ₪789.8m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₪478.3m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Albaad Massuot Yitzhak would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for Albaad Massuot Yitzhak

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.

Even though Albaad Massuot Yitzhak's debt is only 2.4, its interest cover is really very low at 2.3. This does suggest the company is paying fairly high interest rates. Either way there's no doubt the stock is using meaningful leverage. Notably Albaad Massuot Yitzhak's EBIT was pretty flat over the last year. We would prefer to see some earnings growth, because that always helps diminish debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Albaad Massuot Yitzhak's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Happily for any shareholders, Albaad Massuot Yitzhak actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

We'd go so far as to say Albaad Massuot Yitzhak's level of total liabilities was disappointing. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. Once we consider all the factors above, together, it seems to us that Albaad Massuot Yitzhak's debt is making it a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Albaad Massuot Yitzhak has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.