Is Vireo Growth (CSE:VREO) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Vireo Growth Inc. (CSE:VREO) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Vireo Growth's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Vireo Growth had US$72.2m of debt, an increase on US$69.4m, over one year. However, it does have US$91.6m in cash offsetting this, leading to net cash of US$19.4m.

How Strong Is Vireo Growth's Balance Sheet?

The latest balance sheet data shows that Vireo Growth had liabilities of US$135.5m due within a year, and liabilities of US$87.8m falling due after that. Offsetting these obligations, it had cash of US$91.6m as well as receivables valued at US$16.4m due within 12 months. So it has liabilities totalling US$115.3m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of US$169.3m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Vireo Growth also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Vireo Growth

It is well worth noting that Vireo Growth's EBIT shot up like bamboo after rain, gaining 71% in the last twelve months. That'll make it easier to manage its debt. 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 Vireo 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Vireo Growth may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last two years, Vireo Growth burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While Vireo Growth does have more liabilities than liquid assets, it also has net cash of US$19.4m. And it impressed us with its EBIT growth of 71% over the last year. So although we see some areas for improvement, we're not too worried about Vireo Growth's balance sheet. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Vireo Growth you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.