Is Vmoto (ASX:VMT) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Vmoto Limited (ASX:VMT) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for Vmoto

How Much Debt Does Vmoto Carry?

As you can see below, at the end of December 2023, Vmoto had AU$4.12m of debt, up from none a year ago. Click the image for more detail. However, it does have AU$42.5m in cash offsetting this, leading to net cash of AU$38.4m.

A Look At Vmoto's Liabilities

The latest balance sheet data shows that Vmoto had liabilities of AU$18.0m due within a year, and liabilities of AU$922.8k falling due after that. On the other hand, it had cash of AU$42.5m and AU$14.4m worth of receivables due within a year. So it can boast AU$38.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that Vmoto's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Vmoto has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Vmoto'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.

In the last year Vmoto had a loss before interest and tax, and actually shrunk its revenue by 40%, to AU$70m. To be frank that doesn't bode well.

So How Risky Is Vmoto?

While Vmoto lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of AU$7.2m. 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. There's no doubt the next few years will be crucial to how the business matures. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Vmoto is showing 3 warning signs in our investment analysis , and 1 of those can'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.