Health Check: How Prudently Does VSBLTY Groupe Technologies (CSE:VSBY) Use Debt?

Simply Wall St
August 29, 2021
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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.' 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. As with many other companies VSBLTY Groupe Technologies Corp. (CSE:VSBY) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for VSBLTY Groupe Technologies

What Is VSBLTY Groupe Technologies's Debt?

The image below, which you can click on for greater detail, shows that VSBLTY Groupe Technologies had debt of US$2.04m at the end of June 2021, a reduction from US$3.73m over a year. However, it does have US$8.16m in cash offsetting this, leading to net cash of US$6.12m.

CNSX:VSBY Debt to Equity History August 30th 2021

How Strong Is VSBLTY Groupe Technologies' Balance Sheet?

We can see from the most recent balance sheet that VSBLTY Groupe Technologies had liabilities of US$3.46m falling due within a year, and liabilities of US$128.5k due beyond that. Offsetting these obligations, it had cash of US$8.16m as well as receivables valued at US$401.2k due within 12 months. So it actually has US$4.97m more liquid assets than total liabilities.

This short term liquidity is a sign that VSBLTY Groupe Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that VSBLTY Groupe Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since VSBLTY Groupe Technologies will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given it has no significant operating revenue at the moment, shareholders will be hoping VSBLTY Groupe Technologies can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is VSBLTY Groupe Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year VSBLTY Groupe Technologies had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$6.7m of cash and made a loss of US$11m. Given it only has net cash of US$6.12m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example VSBLTY Groupe Technologies has 5 warning signs (and 3 which are potentially serious) we think 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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