We Think Dalipal Holdings (HKG:1921) Has A Fair Chunk Of 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.' 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. Importantly, Dalipal Holdings Limited (HKG:1921) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Dalipal Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Dalipal Holdings had debt of CN¥2.21b, up from CN¥1.77b in one year. However, it also had CN¥412.1m in cash, and so its net debt is CN¥1.80b.

A Look At Dalipal Holdings' Liabilities

The latest balance sheet data shows that Dalipal Holdings had liabilities of CN¥2.48b due within a year, and liabilities of CN¥712.3m falling due after that. On the other hand, it had cash of CN¥412.1m and CN¥1.31b worth of receivables due within a year. So it has liabilities totalling CN¥1.48b more than its cash and near-term receivables, combined.

Given Dalipal Holdings has a market capitalization of CN¥8.64b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Dalipal Holdings'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 Dalipal Holdings

Over 12 months, Dalipal Holdings made a loss at the EBIT level, and saw its revenue drop to CN¥3.3b, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

Not only did Dalipal Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CN¥14m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥318m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Dalipal Holdings that you should be aware of before investing here.

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.