Is Doral Group Renewable Energy Resources (TLV:DORL) Using Debt In A Risky Way?

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. Importantly, Doral Group Renewable Energy Resources Ltd (TLV:DORL) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Doral Group Renewable Energy Resources

How Much Debt Does Doral Group Renewable Energy Resources Carry?

The image below, which you can click on for greater detail, shows that at September 2021 Doral Group Renewable Energy Resources had debt of ₪559.8m, up from ₪133.3m in one year. But it also has ₪595.1m in cash to offset that, meaning it has ₪35.3m net cash.

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

According to the last reported balance sheet, Doral Group Renewable Energy Resources had liabilities of ₪108.0m due within 12 months, and liabilities of ₪584.0m due beyond 12 months. On the other hand, it had cash of ₪595.1m and ₪72.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪24.9m.

This state of affairs indicates that Doral Group Renewable Energy Resources' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₪2.06b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Doral Group Renewable Energy Resources also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Doral Group Renewable Energy Resources can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Doral Group Renewable Energy Resources reported revenue of ₪133m, which is a gain of 399%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Doral Group Renewable Energy Resources?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Doral Group Renewable Energy Resources had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₪204m and booked a ₪12m accounting loss. Given it only has net cash of ₪35.3m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Doral Group Renewable Energy Resources's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Doral Group Renewable Energy Resources , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.