Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that D-Market Elektronik Hizmetler ve Ticaret A.S. (NASDAQ:HEPS) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
What Is D-Market Elektronik Hizmetler ve Ticaret's Net Debt?
As you can see below, at the end of December 2023, D-Market Elektronik Hizmetler ve Ticaret had ₺186.3m of debt, up from ₺24.0m a year ago. Click the image for more detail. However, it does have ₺7.22b in cash offsetting this, leading to net cash of ₺7.04b.
A Look At D-Market Elektronik Hizmetler ve Ticaret's Liabilities
The latest balance sheet data shows that D-Market Elektronik Hizmetler ve Ticaret had liabilities of ₺13.6b due within a year, and liabilities of ₺631.7m falling due after that. On the other hand, it had cash of ₺7.22b and ₺2.40b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₺4.65b.
While this might seem like a lot, it is not so bad since D-Market Elektronik Hizmetler ve Ticaret has a market capitalization of ₺14.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine D-Market Elektronik Hizmetler ve Ticaret's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, D-Market Elektronik Hizmetler ve Ticaret reported revenue of ₺36b, which is a gain of 121%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth
So How Risky Is D-Market Elektronik Hizmetler ve Ticaret?
While D-Market Elektronik Hizmetler ve Ticaret lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₺76m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. One positive is that D-Market Elektronik Hizmetler ve Ticaret is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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. To that end, you should learn about the 2 warning signs we've spotted with D-Market Elektronik Hizmetler ve Ticaret (including 1 which is potentially serious) .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.