Is CVC Brasil Operadora e Agência de Viagens (BVMF:CVCB3) Weighed On By Its Debt Load?

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 A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, 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 thing to do when considering how much debt a business uses is to look at 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 Debt?

As you can see below, CVC Brasil Operadora e Agência de Viagens had R$776.5m of debt at September 2023, down from R$959.7m a year prior. On the flip side, it has R$221.6m in cash leading to net debt of about R$554.9m.

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

The latest balance sheet data shows that CVC Brasil Operadora e Agência de Viagens had liabilities of R$2.63b due within a year, and liabilities of R$960.5m falling due after that. On the other hand, it had cash of R$221.6m and R$1.19b worth of receivables due within a year. So its liabilities total R$2.18b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the R$1.32b 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'd watch its balance sheet closely, without a doubt. After all, CVC Brasil Operadora e Agência de Viagens 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 ultimately the future profitability of the business will decide if CVC Brasil Operadora e Agência de Viagens can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year CVC Brasil Operadora e Agência de Viagens wasn't profitable at an EBIT level, but managed to grow its revenue by 3.9%, to R$1.3b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months CVC Brasil Operadora e Agência de Viagens produced an earnings before interest and tax (EBIT) loss. Indeed, it lost R$93m 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$303m in negative free cash flow over the last year. That means it's on the risky side of things. 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. For example, we've discovered 3 warning signs for CVC Brasil Operadora e Agência de Viagens that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.