Auditors Have Doubts About D B Realty (NSE:DBREALTY)

The harsh reality for D B Realty Limited (NSE:DBREALTY) shareholders is that its auditors, N.A. Shah Associates, expressed doubts about its ability to continue as a going concern, in its reported results to June 2022. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible. Worse still, the auditor has given a qualified opinion, which is a red flag for many investors, and lenders.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So current risks on the balance sheet could have a big impact on how shareholders fare from here. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

Check out our latest analysis for D B Realty

How Much Debt Does D B Realty Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 D B Realty had ₹32.6b of debt, an increase on ₹18.6b, over one year. However, because it has a cash reserve of ₹1.54b, its net debt is less, at about ₹31.0b.

A Look At D B Realty's Liabilities

Zooming in on the latest balance sheet data, we can see that D B Realty had liabilities of ₹49.3b due within 12 months and liabilities of ₹20.6b due beyond that. On the other hand, it had cash of ₹1.54b and ₹15.1b worth of receivables due within a year. So it has liabilities totalling ₹53.3b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₹30.1b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, D B Realty would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since D B Realty 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, D B Realty reported revenue of ₹2.2b, which is a gain of 626%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, D B Realty still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₹705m 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 had negative free cash flow of ₹2.7b over the last twelve months. That means it's on the risky side of things. In any event, once you consider that the auditor has qualified their opinion, there is no way we would be interested in buying shares in this company. 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 4 warning signs with D B Realty (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.