Is TVA Group (TSE:TVA.B) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies TVA Group Inc. (TSE:TVA.B) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for TVA Group

What Is TVA Group's Debt?

As you can see below, TVA Group had CA$10.1m of debt at December 2022, down from CA$12.0m a year prior. However, it does have CA$2.42m in cash offsetting this, leading to net debt of about CA$7.65m.

How Healthy Is TVA Group's Balance Sheet?

According to the last reported balance sheet, TVA Group had liabilities of CA$262.5m due within 12 months, and liabilities of CA$20.1m due beyond 12 months. Offsetting these obligations, it had cash of CA$2.42m as well as receivables valued at CA$183.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$96.6m.

Given this deficit is actually higher than the company's market capitalization of CA$73.4m, we think shareholders really should watch TVA Group's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if TVA Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year TVA Group had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to CA$594m. That's not what we would hope to see.

Caveat Emptor

Importantly, TVA Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$10m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of CA$8.9m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for TVA Group that you should be aware of.

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.