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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for CVC Brasil Operadora e Agência de Viagens

What Is CVC Brasil Operadora e Agência de Viagens's Net Debt?

As you can see below, CVC Brasil Operadora e Agência de Viagens had R$790.9m of debt at June 2023, down from R$924.9m a year prior. On the flip side, it has R$773.9m in cash leading to net debt of about R$17.0m.

How Healthy Is CVC Brasil Operadora e Agência de Viagens' Balance Sheet?

We can see from the most recent balance sheet that CVC Brasil Operadora e Agência de Viagens had liabilities of R$2.58b falling due within a year, and liabilities of R$1.01b due beyond that. On the other hand, it had cash of R$773.9m and R$797.3m worth of receivables due within a year. So it has liabilities totalling R$2.02b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the R$809.5m 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, 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, CVC Brasil Operadora e Agência de Viagens reported revenue of R$1.2b, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months CVC Brasil Operadora e Agência de Viagens produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at R$63m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of R$467m. In the meantime, we consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for CVC Brasil Operadora e Agência de Viagens (of which 1 is significant!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.