Health Check: How Prudently Does InVision (ETR:IVX) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that InVision Aktiengesellschaft (ETR:IVX) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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

View our latest analysis for InVision

What Is InVision's Net Debt?

You can click the graphic below for the historical numbers, but it shows that InVision had €5.04m of debt in March 2022, down from €5.28m, one year before. However, its balance sheet shows it holds €8.28m in cash, so it actually has €3.24m net cash.

A Look At InVision's Liabilities

Zooming in on the latest balance sheet data, we can see that InVision had liabilities of €5.11m due within 12 months and liabilities of €6.14m due beyond that. Offsetting these obligations, it had cash of €8.28m as well as receivables valued at €2.30m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €681.1k.

This state of affairs indicates that InVision's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €47.8m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, InVision boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if InVision can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, InVision reported revenue of €14m, which is a gain of 7.2%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is InVision?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months InVision lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €737k of cash and made a loss of €2.4m. With only €3.24m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with InVision , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.