These 4 Measures Indicate That CVC Brasil Operadora e Agência de Viagens (BVMF:CVCB3) Is Using Debt Extensively

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that CVC Brasil Operadora e Agência de Viagens S.A. (BVMF:CVCB3) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we think about a company's use of debt, we first look at cash and debt together.

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

You can click the graphic below for the historical numbers, but it shows that CVC Brasil Operadora e Agência de Viagens had R$567.3m of debt in March 2025, down from R$841.6m, one year before. However, because it has a cash reserve of R$403.9m, its net debt is less, at about R$163.5m.

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

Zooming in on the latest balance sheet data, we can see that CVC Brasil Operadora e Agência de Viagens had liabilities of R$2.46b due within 12 months and liabilities of R$753.7m due beyond that. Offsetting these obligations, it had cash of R$403.9m as well as receivables valued at R$1.09b due within 12 months. So it has liabilities totalling R$1.72b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the R$1.09b 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. At the end of the day, CVC Brasil Operadora e Agência de Viagens would probably need a major re-capitalization if its creditors were to demand repayment.

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

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Given net debt is only 0.98 times EBITDA, it is initially surprising to see that CVC Brasil Operadora e Agência de Viagens's EBIT has low interest coverage of 0.43 times. So while we're not necessarily alarmed we think that its debt is far from trivial. Notably, CVC Brasil Operadora e Agência de Viagens made a loss at the EBIT level, last year, but improved that to positive EBIT of R$103m in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. Happily for any shareholders, CVC Brasil Operadora e Agência de Viagens actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

To be frank both CVC Brasil Operadora e Agência de Viagens's level of total liabilities and its track record of covering its interest expense with its EBIT make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Once we consider all the factors above, together, it seems to us that CVC Brasil Operadora e Agência de Viagens's debt is making it a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. 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. We've identified 1 warning sign with CVC Brasil Operadora e Agência de Viagens , and understanding them should be part of your investment process.

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.