Is Alony-Hetz Properties & Investments (TLV:ALHE) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Alony-Hetz Properties & Investments Ltd (TLV:ALHE) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Alony-Hetz Properties & Investments

How Much Debt Does Alony-Hetz Properties & Investments Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Alony-Hetz Properties & Investments had debt of ₪21.7b, up from ₪20.2b in one year. However, it also had ₪1.37b in cash, and so its net debt is ₪20.3b.

How Healthy Is Alony-Hetz Properties & Investments' Balance Sheet?

We can see from the most recent balance sheet that Alony-Hetz Properties & Investments had liabilities of ₪4.02b falling due within a year, and liabilities of ₪23.5b due beyond that. Offsetting this, it had ₪1.37b in cash and ₪544.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪25.6b.

The deficiency here weighs heavily on the ₪5.16b 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. After all, Alony-Hetz Properties & Investments would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Alony-Hetz Properties & Investments'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.

In the last year Alony-Hetz Properties & Investments had a loss before interest and tax, and actually shrunk its revenue by 30%, to ₪403m. That makes us nervous, to say the least.

Caveat Emptor

While Alony-Hetz Properties & Investments's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₪301m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized ₪1.7b in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Alony-Hetz Properties & Investments has 3 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.