Ðuro Ðakovic Grupa d.d (ZGSE:DDJH) Is Making Moderate Use Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Ðuro Ðakovic Grupa d.d. (ZGSE:DDJH) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, 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 Ðuro Ðakovic Grupa d.d Carry?

You can click the graphic below for the historical numbers, but it shows that Ðuro Ðakovic Grupa d.d had €14.5m of debt in December 2024, down from €15.7m, one year before. However, it also had €8.02m in cash, and so its net debt is €6.50m.

How Healthy Is Ðuro Ðakovic Grupa d.d's Balance Sheet?

We can see from the most recent balance sheet that Ðuro Ðakovic Grupa d.d had liabilities of €48.5m falling due within a year, and liabilities of €21.7m due beyond that. On the other hand, it had cash of €8.02m and €17.5m worth of receivables due within a year. So its liabilities total €44.6m more than the combination of its cash and short-term receivables.

Of course, Ðuro Ðakovic Grupa d.d has a market capitalization of €1.33b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Ðuro Ðakovic Grupa d.d has virtually no net debt, 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 you can't view debt in total isolation; since Ðuro Ðakovic Grupa d.d will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Ðuro Ðakovic Grupa d.d

In the last year Ðuro Ðakovic Grupa d.d wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to €124m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Ðuro Ðakovic Grupa d.d still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €2.0m at the EBIT level. 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. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of €2.7m and the profit of €6.9m. So one might argue that there's still a chance it can get things on the right track. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Ðuro Ðakovic Grupa d.d .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.