Is MRV Engenharia e Participações (BVMF:MRVE3) A Risky Investment?

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.' 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 can see that MRV Engenharia e Participações S.A. (BVMF:MRVE3) does use debt in its business. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does MRV Engenharia e Participações Carry?

As you can see below, MRV Engenharia e Participações had R$7.96b of debt at June 2025, down from R$8.40b a year prior. On the flip side, it has R$2.55b in cash leading to net debt of about R$5.41b.

How Healthy Is MRV Engenharia e Participações' Balance Sheet?

We can see from the most recent balance sheet that MRV Engenharia e Participações had liabilities of R$8.89b falling due within a year, and liabilities of R$12.5b due beyond that. Offsetting these obligations, it had cash of R$2.55b as well as receivables valued at R$4.12b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by R$14.7b.

The deficiency here weighs heavily on the R$3.52b 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 definitely think shareholders need to watch this one closely. After all, MRV Engenharia e Participações would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MRV Engenharia e Participações'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.

See our latest analysis for MRV Engenharia e Participações

Over 12 months, MRV Engenharia e Participações reported revenue of R$9.8b, which is a gain of 21%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, MRV Engenharia e Participações still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at R$103m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost R$1.7b in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with MRV Engenharia e Participações (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.