Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that D-Market Elektronik Hizmetler ve Ticaret A.S. (NASDAQ:HEPS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does D-Market Elektronik Hizmetler ve Ticaret Carry?

As you can see below, at the end of March 2024, D-Market Elektronik Hizmetler ve Ticaret had ₺314.6m of debt, up from ₺34.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds ₺7.97b in cash, so it actually has ₺7.65b net cash.

How Strong Is D-Market Elektronik Hizmetler ve Ticaret's Balance Sheet?

We can see from the most recent balance sheet that D-Market Elektronik Hizmetler ve Ticaret had liabilities of ₺15.8b falling due within a year, and liabilities of ₺836.2m due beyond that. Offsetting this, it had ₺7.97b in cash and ₺3.05b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₺5.61b.

Given D-Market Elektronik Hizmetler ve Ticaret has a market capitalization of ₺34.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, D-Market Elektronik Hizmetler ve Ticaret reported revenue of ₺39b, which is a gain of 134%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is D-Market Elektronik Hizmetler ve Ticaret?

Although D-Market Elektronik Hizmetler ve Ticaret had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₺270m. So taking that on face value, and considering the cash, we don't think its very risky in the near 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. Case in point: We've spotted 2 warning signs for D-Market Elektronik Hizmetler ve Ticaret you should be aware of, and 1 of them shouldn't be ignored.

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.

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