Is Dorel Industries (TSE:DII.B) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Dorel Industries Inc. (TSE:DII.B) makes use of debt. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Dorel Industries Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Dorel Industries had US$278.8m of debt, an increase on US$256.4m, over one year. However, because it has a cash reserve of US$30.7m, its net debt is less, at about US$248.2m.

How Healthy Is Dorel Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Dorel Industries had liabilities of US$622.6m due within 12 months and liabilities of US$144.3m due beyond that. Offsetting these obligations, it had cash of US$30.7m as well as receivables valued at US$161.6m due within 12 months. So it has liabilities totalling US$574.7m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$33.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Dorel Industries would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Dorel Industries's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Dorel Industries

Over 12 months, Dorel Industries made a loss at the EBIT level, and saw its revenue drop to US$1.3b, which is a fall of 4.1%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Dorel Industries produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$34m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$180m in the last year. So we think buying this stock is risky. 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. Case in point: We've spotted 3 warning signs for Dorel Industries you should be aware of, and 1 of them can't be ignored.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.