Is D-Market Elektronik Hizmetler ve Ticaret (NASDAQ:HEPS) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that D-Market Elektronik Hizmetler ve Ticaret A.S. (NASDAQ:HEPS) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for D-Market Elektronik Hizmetler ve Ticaret

What Is D-Market Elektronik Hizmetler ve Ticaret's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 D-Market Elektronik Hizmetler ve Ticaret had ₺199.8m of debt, an increase on ₺64.8m, over one year. However, it does have ₺6.40b in cash offsetting this, leading to net cash of ₺6.20b.

A Look At D-Market Elektronik Hizmetler ve Ticaret's Liabilities

Zooming in on the latest balance sheet data, we can see that D-Market Elektronik Hizmetler ve Ticaret had liabilities of ₺11.2b due within 12 months and liabilities of ₺569.0m due beyond that. Offsetting these obligations, it had cash of ₺6.40b as well as receivables valued at ₺1.57b due within 12 months. So it has liabilities totalling ₺3.79b more than its cash and near-term receivables, combined.

D-Market Elektronik Hizmetler ve Ticaret has a market capitalization of ₺16.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, D-Market Elektronik Hizmetler ve Ticaret also has more cash than debt, so we're pretty confident it can manage its debt safely.

We also note that D-Market Elektronik Hizmetler ve Ticaret improved its EBIT from a last year's loss to a positive ₺735m. 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 D-Market Elektronik Hizmetler ve Ticaret can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. D-Market Elektronik Hizmetler ve Ticaret may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, D-Market Elektronik Hizmetler ve Ticaret actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although D-Market Elektronik Hizmetler ve Ticaret's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₺6.20b. The cherry on top was that in converted 385% of that EBIT to free cash flow, bringing in ₺2.8b. So we are not troubled with D-Market Elektronik Hizmetler ve Ticaret's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for D-Market Elektronik Hizmetler ve Ticaret that you should be aware of before investing here.

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.