Health Check: How Prudently Does CVC Brasil Operadora e Agência de Viagens (BVMF:CVCB3) Use Debt?

Warren Buffett famously said, '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 can see that CVC Brasil Operadora e Agência de Viagens S.A. (BVMF:CVCB3) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CVC Brasil Operadora e Agência de Viagens

How Much Debt Does CVC Brasil Operadora e Agência de Viagens Carry?

As you can see below, CVC Brasil Operadora e Agência de Viagens had R$932.9m of debt at December 2022, down from R$1.04b a year prior. However, because it has a cash reserve of R$687.5m, its net debt is less, at about R$245.4m.

A Look At CVC Brasil Operadora e Agência de Viagens' Liabilities

The latest balance sheet data shows that CVC Brasil Operadora e Agência de Viagens had liabilities of R$3.13b due within a year, and liabilities of R$470.7m falling due after that. Offsetting these obligations, it had cash of R$687.5m as well as receivables valued at R$661.7m due within 12 months. So it has liabilities totalling R$2.25b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the R$773.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, CVC Brasil Operadora e Agência de Viagens would likely require a major re-capitalisation if it had to pay its creditors today. 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 CVC Brasil Operadora e Agência de Viagens'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, CVC Brasil Operadora e Agência de Viagens reported revenue of R$1.2b, which is a gain of 48%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate CVC Brasil Operadora e Agência de Viagens's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost R$37m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. 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 vaporized R$121m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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 CVC Brasil Operadora e Agência de Viagens you should be aware of, and 1 of them is concerning.

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.

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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.