Does Vibe Growth (CSE:VIBE) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Vibe Growth Corporation (CSE:VIBE) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Vibe Growth

What Is Vibe Growth's Debt?

As you can see below, at the end of June 2022, Vibe Growth had US$1.69m of debt, up from US$1.55m a year ago. Click the image for more detail. But on the other hand it also has US$7.35m in cash, leading to a US$5.67m net cash position.

How Strong Is Vibe Growth's Balance Sheet?

The latest balance sheet data shows that Vibe Growth had liabilities of US$9.81m due within a year, and liabilities of US$2.70m falling due after that. On the other hand, it had cash of US$7.35m and US$138.0k worth of receivables due within a year. So its liabilities total US$5.02m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Vibe Growth has a market capitalization of US$21.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Vibe Growth boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Vibe Growth'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, Vibe Growth made a loss at the EBIT level, and saw its revenue drop to US$25m, which is a fall of 14%. That's not what we would hope to see.

So How Risky Is Vibe Growth?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Vibe Growth had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$7.9m and booked a US$5.9m accounting loss. Given it only has net cash of US$5.67m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 4 warning signs for Vibe Growth you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.