We Think mVISE (ETR:C1V) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that mVISE AG (ETR:C1V) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.

Check out our latest analysis for mVISE

How Much Debt Does mVISE Carry?

The image below, which you can click on for greater detail, shows that mVISE had debt of €6.17m at the end of June 2024, a reduction from €6.45m over a year. However, it also had €222.0k in cash, and so its net debt is €5.95m.

How Healthy Is mVISE's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that mVISE had liabilities of €1.71m due within 12 months and liabilities of €6.57m due beyond that. Offsetting this, it had €222.0k in cash and €546.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €7.51m.

This deficit is considerable relative to its market capitalization of €9.28m, so it does suggest shareholders should keep an eye on mVISE's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 mVISE's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year mVISE had a loss before interest and tax, and actually shrunk its revenue by 24%, to €11m. That makes us nervous, to say the least.

Caveat Emptor

Not only did mVISE's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €4.2m at the EBIT level. 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 €109k in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that mVISE is showing 4 warning signs in our investment analysis , and 3 of those are a bit concerning...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.