Global Vectra Helicorp (NSE:GLOBALVECT) Has Debt But No Earnings; Should You Worry?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Global Vectra Helicorp Limited (NSE:GLOBALVECT) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Global Vectra Helicorp

What Is Global Vectra Helicorp's Net Debt?

As you can see below, Global Vectra Helicorp had ₹605.6m of debt at March 2020, down from ₹789.0m a year prior. On the flip side, it has ₹382.6m in cash leading to net debt of about ₹223.0m.

How Healthy Is Global Vectra Helicorp's Balance Sheet?

According to the last reported balance sheet, Global Vectra Helicorp had liabilities of ₹4.14b due within 12 months, and liabilities of ₹3.14b due beyond 12 months. Offsetting this, it had ₹382.6m in cash and ₹968.6m in receivables that were due within 12 months. So its liabilities total ₹5.9b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₹806.4m 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'd watch its balance sheet closely, without a doubt. At the end of the day, Global Vectra Helicorp would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Global Vectra Helicorp's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Global Vectra Helicorp made a loss at the EBIT level, and saw its revenue drop to ₹4.6b, which is a fall of 5.0%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Global Vectra Helicorp produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹6.0m at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But we note that trailing twelve month EBIT is worse than the free cash flow of ₹486m and the profit of ₹21m. So its situation may not be as precarious as the EBIT would imply. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for Global Vectra Helicorp (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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. 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.
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