Health Check: How Prudently Does Delivra Health Brands (CVE:DHB) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Delivra Health Brands Inc. (CVE:DHB) does carry debt. But the real question is whether this debt is making the company risky.

Our free stock report includes 3 warning signs investors should be aware of before investing in Delivra Health Brands. Read for free now.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Delivra Health Brands's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Delivra Health Brands had CA$2.15m of debt, an increase on CA$1.91m, over one year. But it also has CA$3.85m in cash to offset that, meaning it has CA$1.70m net cash.

A Look At Delivra Health Brands' Liabilities

According to the last reported balance sheet, Delivra Health Brands had liabilities of CA$2.24m due within 12 months, and liabilities of CA$1.91m due beyond 12 months. Offsetting this, it had CA$3.85m in cash and CA$2.31m in receivables that were due within 12 months. So it actually has CA$2.01m more liquid assets than total liabilities.

This excess liquidity suggests that Delivra Health Brands is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Delivra Health Brands boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Delivra Health Brands'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.

View our latest analysis for Delivra Health Brands

In the last year Delivra Health Brands wasn't profitable at an EBIT level, but managed to grow its revenue by 10%, to CA$13m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Delivra Health Brands?

Although Delivra Health Brands had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CA$9.0k. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. To that end, you should learn about the 3 warning signs we've spotted with Delivra Health Brands (including 2 which shouldn't be ignored) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.