Stock Analysis

Dalrymple Bay Infrastructure (ASX:DBI) Takes On Some Risk With Its Use Of Debt

ASX:DBI
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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 Dalrymple Bay Infrastructure Limited (ASX:DBI) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Dalrymple Bay Infrastructure Carry?

The image below, which you can click on for greater detail, shows that Dalrymple Bay Infrastructure had debt of AU$2.04b at the end of December 2024, a reduction from AU$2.49b over a year. However, it also had AU$89.9m in cash, and so its net debt is AU$1.95b.

debt-equity-history-analysis
ASX:DBI Debt to Equity History June 19th 2025

How Strong Is Dalrymple Bay Infrastructure's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Dalrymple Bay Infrastructure had liabilities of AU$119.8m due within 12 months and liabilities of AU$2.21b due beyond that. Offsetting these obligations, it had cash of AU$89.9m as well as receivables valued at AU$62.5m due within 12 months. So it has liabilities totalling AU$2.18b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's AU$1.92b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.

View our latest analysis for Dalrymple Bay Infrastructure

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.

Weak interest cover of 2.1 times and a disturbingly high net debt to EBITDA ratio of 7.0 hit our confidence in Dalrymple Bay Infrastructure like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. Fortunately, Dalrymple Bay Infrastructure grew its EBIT by 7.9% in the last year, slowly shrinking its debt relative to earnings. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Dalrymple Bay Infrastructure can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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. Over the most recent three years, Dalrymple Bay Infrastructure recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

On the face of it, Dalrymple Bay Infrastructure's interest cover left us tentative about the stock, and its net debt to EBITDA was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at growing its EBIT; that's encouraging. It's also worth noting that Dalrymple Bay Infrastructure is in the Infrastructure industry, which is often considered to be quite defensive. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making Dalrymple Bay Infrastructure stock 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Dalrymple Bay Infrastructure is showing 2 warning signs in our investment analysis , 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.

About ASX:DBI

Dalrymple Bay Infrastructure

Owns the lease of and right to operate the Dalrymple Bay terminal, a metallurgical coal export facility in Bowen Basin in Queensland, Australia.

Acceptable track record with limited growth.

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