Does Doral Group Renewable Energy Resources (TLV:DORL) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Doral Group Renewable Energy Resources Ltd (TLV:DORL) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Doral Group Renewable Energy Resources

What Is Doral Group Renewable Energy Resources's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2023 Doral Group Renewable Energy Resources had debt of ₪1.43b, up from ₪853.1m in one year. On the flip side, it has ₪431.2m in cash leading to net debt of about ₪1.00b.

How Healthy Is Doral Group Renewable Energy Resources' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Doral Group Renewable Energy Resources had liabilities of ₪610.6m due within 12 months and liabilities of ₪1.21b due beyond that. On the other hand, it had cash of ₪431.2m and ₪558.6m worth of receivables due within a year. So its liabilities total ₪831.0m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of ₪1.22b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Doral Group Renewable Energy Resources'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.

In the last year Doral Group Renewable Energy Resources had a loss before interest and tax, and actually shrunk its revenue by 44%, to ₪45m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Doral Group Renewable Energy Resources'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 ₪62m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₪537m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Doral Group Renewable Energy Resources (at least 1 which is significant) , and understanding them should be part of your investment process.

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.