Yesodot Eitanim Construction (TLV:YESD) Seems To Be Using A Lot Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Yesodot Eitanim Construction Ltd (TLV:YESD) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Yesodot Eitanim Construction's Debt?

As you can see below, Yesodot Eitanim Construction had ₪118.0m of debt at June 2025, down from ₪137.6m a year prior. On the flip side, it has ₪29.3m in cash leading to net debt of about ₪88.7m.

How Healthy Is Yesodot Eitanim Construction's Balance Sheet?

We can see from the most recent balance sheet that Yesodot Eitanim Construction had liabilities of ₪113.8m falling due within a year, and liabilities of ₪36.5m due beyond that. On the other hand, it had cash of ₪29.3m and ₪14.8m worth of receivables due within a year. So it has liabilities totalling ₪106.3m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₪64.7m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Yesodot Eitanim Construction would probably need a major re-capitalization if its creditors were to demand repayment.

Check out our latest analysis for Yesodot Eitanim Construction

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.

Weak interest cover of 0.35 times and a disturbingly high net debt to EBITDA ratio of 30.6 hit our confidence in Yesodot Eitanim Construction like a one-two punch to the gut. The debt burden here is substantial. Worse, Yesodot Eitanim Construction's EBIT was down 83% over the last year. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Yesodot Eitanim Construction 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 we always check how much of that EBIT is translated into free cash flow. Over the last two years, Yesodot Eitanim Construction actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

To be frank both Yesodot Eitanim Construction's EBIT growth rate and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. Taking into account all the aforementioned factors, it looks like Yesodot Eitanim Construction has too much debt. While some investors love that sort of risky play, it's certainly not our cup of tea. 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 example, we've discovered 4 warning signs for Yesodot Eitanim Construction (3 shouldn't be ignored!) that you should be aware of before investing here.

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.