Does Inversiones Nutravalor (SNSE:NUTRAVALOR) Have A Healthy Balance Sheet?

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. Importantly, Inversiones Nutravalor S.A. (SNSE:NUTRAVALOR) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Inversiones Nutravalor

How Much Debt Does Inversiones Nutravalor Carry?

The image below, which you can click on for greater detail, shows that Inversiones Nutravalor had debt of US$343.8m at the end of June 2021, a reduction from US$371.9m over a year. However, it does have US$42.8m in cash offsetting this, leading to net debt of about US$301.0m.

How Healthy Is Inversiones Nutravalor's Balance Sheet?

The latest balance sheet data shows that Inversiones Nutravalor had liabilities of US$293.6m due within a year, and liabilities of US$135.8m falling due after that. Offsetting these obligations, it had cash of US$42.8m as well as receivables valued at US$112.6m due within 12 months. So its liabilities total US$274.1m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$38.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Inversiones Nutravalor would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Inversiones Nutravalor will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Inversiones Nutravalor saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Inversiones Nutravalor had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$36m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$4.9m in the last year. So we think buying this stock is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Inversiones Nutravalor 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.

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.

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