Would Doral Group Renewable Energy Resources (TLV:DORL) Be Better Off With Less 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.' 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 note that Doral Group Renewable Energy Resources Ltd (TLV:DORL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Doral Group Renewable Energy Resources

How Much Debt Does Doral Group Renewable Energy Resources Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Doral Group Renewable Energy Resources had ₪2.07b of debt, an increase on ₪1.19b, over one year. However, it does have ₪449.9m in cash offsetting this, leading to net debt of about ₪1.62b.

A Look At Doral Group Renewable Energy Resources' Liabilities

According to the last reported balance sheet, Doral Group Renewable Energy Resources had liabilities of ₪859.8m due within 12 months, and liabilities of ₪1.72b due beyond 12 months. On the other hand, it had cash of ₪449.9m and ₪378.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₪1.75b.

This is a mountain of leverage relative to its market capitalization of ₪2.21b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Doral Group Renewable Energy Resources will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Doral Group Renewable Energy Resources reported revenue of ₪120m, which is a gain of 178%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

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. To be specific the EBIT loss came in at ₪79m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₪652m of cash over the last year. So in short it's a really risky stock. 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, we've discovered 3 warning signs for Doral Group Renewable Energy Resources (2 are a bit unpleasant!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.