Is VVC Exploration (CVE:VVC) Using Too Much Debt?

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. Importantly, VVC Exploration Corporation (CVE:VVC) does carry debt. But the more important question is: how much risk is that debt creating?

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is VVC Exploration's Net Debt?

As you can see below, at the end of April 2025, VVC Exploration had CA$2.37m of debt, up from CA$2.13m a year ago. Click the image for more detail. On the flip side, it has CA$213.1k in cash leading to net debt of about CA$2.16m.

How Strong Is VVC Exploration's Balance Sheet?

According to the last reported balance sheet, VVC Exploration had liabilities of CA$10.4m due within 12 months, and liabilities of CA$1.29m due beyond 12 months. Offsetting these obligations, it had cash of CA$213.1k as well as receivables valued at CA$3.3k due within 12 months. So its liabilities total CA$11.4m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CA$11.5m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since VVC Exploration will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for VVC Exploration

Given its lack of meaningful operating revenue, investors are probably hoping that VVC Exploration finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months VVC Exploration produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$6.1m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$4.3m of cash over the last year. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for VVC Exploration you should know about.

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.