We Think Y.H. Dimri Construction & Development (TLV:DIMRI) Is Taking Some Risk With Its Debt

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 Y.H. Dimri Construction & Development Ltd (TLV:DIMRI) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Y.H. Dimri Construction & Development Carry?

As you can see below, at the end of March 2025, Y.H. Dimri Construction & Development had ₪4.23b of debt, up from ₪3.24b a year ago. Click the image for more detail. However, it also had ₪200.6m in cash, and so its net debt is ₪4.03b.

How Healthy Is Y.H. Dimri Construction & Development's Balance Sheet?

According to the last reported balance sheet, Y.H. Dimri Construction & Development had liabilities of ₪1.43b due within 12 months, and liabilities of ₪3.82b due beyond 12 months. On the other hand, it had cash of ₪200.6m and ₪804.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪4.24b.

This deficit isn't so bad because Y.H. Dimri Construction & Development is worth ₪8.30b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.

Check out our latest analysis for Y.H. Dimri Construction & Development

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.

Y.H. Dimri Construction & Development's net debt to EBITDA ratio is 5.7 which suggests rather high debt levels, but its interest cover of 7.9 times suggests the debt is easily serviced. Overall we'd say it seems likely the company is carrying a fairly heavy swag of debt. It is well worth noting that Y.H. Dimri Construction & Development's EBIT shot up like bamboo after rain, gaining 34% in the last twelve months. That'll make it easier to manage its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Y.H. Dimri Construction & Development'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 we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Y.H. Dimri Construction & Development 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

Y.H. Dimri Construction & Development's conversion of EBIT to free cash flow and net debt to EBITDA definitely weigh on it, in our esteem. But its EBIT growth rate tells a very different story, and suggests some resilience. When we consider all the factors discussed, it seems to us that Y.H. Dimri Construction & Development is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. 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. For instance, we've identified 3 warning signs for Y.H. Dimri Construction & Development (2 can't be ignored) you should be aware of.

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.