Health Check: How Prudently Does Directa Plus (LON:DCTA) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Directa Plus Plc (LON:DCTA) does carry debt. But the real question is whether this debt is making the company risky.

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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. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Directa Plus Carry?

As you can see below, Directa Plus had €1.36m of debt at June 2025, down from €2.91m a year prior. But it also has €2.97m in cash to offset that, meaning it has €1.61m net cash.

A Look At Directa Plus' Liabilities

The latest balance sheet data shows that Directa Plus had liabilities of €2.64m due within a year, and liabilities of €1.16m falling due after that. On the other hand, it had cash of €2.97m and €2.00m worth of receivables due within a year. So it actually has €1.17m more liquid assets than total liabilities.

This short term liquidity is a sign that Directa Plus could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Directa Plus has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Directa Plus's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Directa Plus

In the last year Directa Plus had a loss before interest and tax, and actually shrunk its revenue by 23%, to €7.2m. That makes us nervous, to say the least.

So How Risky Is Directa Plus?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Directa Plus had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €3.7m of cash and made a loss of €4.3m. With only €1.61m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Directa Plus is showing 4 warning signs in our investment analysis , and 2 of those are significant...

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.