Does El Al Israel Airlines (TLV:ELAL) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 El Al Israel Airlines Ltd. (TLV:ELAL) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is El Al Israel Airlines's Net Debt?

As you can see below, El Al Israel Airlines had US$832.6m of debt at December 2024, down from US$1.10b a year prior. However, its balance sheet shows it holds US$1.41b in cash, so it actually has US$580.7m net cash.

How Strong Is El Al Israel Airlines' Balance Sheet?

We can see from the most recent balance sheet that El Al Israel Airlines had liabilities of US$2.06b falling due within a year, and liabilities of US$1.79b due beyond that. On the other hand, it had cash of US$1.41b and US$372.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.06b.

When you consider that this deficiency exceeds the company's US$1.47b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. El Al Israel Airlines boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

Check out our latest analysis for El Al Israel Airlines

Better yet, El Al Israel Airlines grew its EBIT by 205% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is El Al Israel Airlines's earnings that will influence how the balance sheet holds up in the future. 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. El Al Israel Airlines may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, El Al Israel Airlines actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While El Al Israel Airlines does have more liabilities than liquid assets, it also has net cash of US$580.7m. The cherry on top was that in converted 170% of that EBIT to free cash flow, bringing in US$1.2b. So we don't have any problem with El Al Israel Airlines's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with El Al Israel Airlines , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.