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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Doral Group Renewable Energy Resources Ltd (TLV:DORL) does use debt in its business. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Doral Group Renewable Energy Resources

How Much Debt Does Doral Group Renewable Energy Resources Carry?

As you can see below, at the end of September 2024, Doral Group Renewable Energy Resources had ₪3.22b of debt, up from ₪1.90b a year ago. Click the image for more detail. However, it does have ₪625.4m in cash offsetting this, leading to net debt of about ₪2.59b.

A Look At Doral Group Renewable Energy Resources' Liabilities

According to the last reported balance sheet, Doral Group Renewable Energy Resources had liabilities of ₪1.25b due within 12 months, and liabilities of ₪2.41b due beyond 12 months. Offsetting this, it had ₪625.4m in cash and ₪491.0m in receivables that were due within 12 months. So its liabilities total ₪2.54b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's ₪2.46b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But it is Doral Group Renewable Energy Resources's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Doral Group Renewable Energy Resources wasn't profitable at an EBIT level, but managed to grow its revenue by 448%, to ₪279m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Doral Group Renewable Energy Resources's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost ₪77m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through ₪769m in negative free cash flow over the last year. That means it's on the risky side of things. 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. For example Doral Group Renewable Energy Resources has 3 warning signs (and 2 which are significant) we think you should know about.

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.