Viver Incorporadora e Construtora (BVMF:VIVR3) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Viver Incorporadora e Construtora S.A. (BVMF:VIVR3) makes use of debt. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Viver Incorporadora e Construtora

What Is Viver Incorporadora e Construtora's Debt?

As you can see below, Viver Incorporadora e Construtora had R$32.8m of debt at March 2024, down from R$47.3m a year prior. On the flip side, it has R$8.26m in cash leading to net debt of about R$24.6m.

A Look At Viver Incorporadora e Construtora's Liabilities

We can see from the most recent balance sheet that Viver Incorporadora e Construtora had liabilities of R$89.6m falling due within a year, and liabilities of R$85.7m due beyond that. Offsetting this, it had R$8.26m in cash and R$29.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by R$137.1m.

This deficit casts a shadow over the R$64.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Viver Incorporadora e Construtora 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 Viver Incorporadora e Construtora's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Viver Incorporadora e Construtora made a loss at the EBIT level, and saw its revenue drop to R$62m, which is a fall of 51%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Viver Incorporadora e Construtora's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable R$41m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through R$23m in negative free cash flow over the last year. That means it's on the risky side of things. 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. For example, we've discovered 3 warning signs for Viver Incorporadora e Construtora (1 is a bit concerning!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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

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.