Does Aevis Victoria (VTX:AEVS) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Aevis Victoria SA (VTX:AEVS) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Aevis Victoria

What Is Aevis Victoria's Debt?

As you can see below, at the end of December 2023, Aevis Victoria had CHF1.00b of debt, up from CHF948.6m a year ago. Click the image for more detail. However, it does have CHF80.7m in cash offsetting this, leading to net debt of about CHF920.8m.

A Look At Aevis Victoria's Liabilities

According to the last reported balance sheet, Aevis Victoria had liabilities of CHF370.3m due within 12 months, and liabilities of CHF946.8m due beyond 12 months. Offsetting these obligations, it had cash of CHF80.7m as well as receivables valued at CHF239.9m due within 12 months. So its liabilities total CHF996.5m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CHF1.29b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Aevis Victoria 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.

In the last year Aevis Victoria had a loss before interest and tax, and actually shrunk its revenue by 14%, to CHF833m. That's not what we would hope to see.

Caveat Emptor

Not only did Aevis Victoria's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CHF22m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CHF66m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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 example - Aevis Victoria has 3 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.