We Think Frutícola Viconto (SNSE:VICONTO) Has A Fair Chunk Of Debt

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.' 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 Frutícola Viconto S.A. (SNSE:VICONTO) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Frutícola Viconto

What Is Frutícola Viconto's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Frutícola Viconto had US$5.86m of debt, an increase on US$4.60m, over one year. However, because it has a cash reserve of US$768.0k, its net debt is less, at about US$5.09m.

A Look At Frutícola Viconto's Liabilities

The latest balance sheet data shows that Frutícola Viconto had liabilities of US$6.15m due within a year, and liabilities of US$4.77m falling due after that. On the other hand, it had cash of US$768.0k and US$1.54m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$8.61m.

This deficit isn't so bad because Frutícola Viconto is worth US$14.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Frutícola Viconto's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Frutícola Viconto made a loss at the EBIT level, and saw its revenue drop to US$3.2m, which is a fall of 21%. To be frank that doesn't bode well.

Caveat Emptor

While Frutícola Viconto's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$918k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 US$565k in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 instance, we've identified 4 warning signs for Frutícola Viconto (2 are concerning) 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.