InVision (ETR:IVX) Has Debt But No Earnings; Should You Worry?
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.' 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 the more important question is: how much risk is that debt creating?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
View our latest analysis for InVision
What Is InVision's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2022 InVision had €8.04m of debt, an increase on €5.04m, over one year. However, it does have €8.71m in cash offsetting this, leading to net cash of €671.2k.
How Healthy Is InVision's Balance Sheet?
The latest balance sheet data shows that InVision had liabilities of €3.17m due within a year, and liabilities of €9.04m falling due after that. On the other hand, it had cash of €8.71m and €1.27m worth of receivables due within a year. So its liabilities total €2.22m more than the combination of its cash and short-term receivables.
Of course, InVision has a market capitalization of €18.8m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 it is future earnings, more than anything, that will determine InVision's ability to maintain a healthy balance sheet going forward. 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. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is InVision?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that InVision had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €1.6m of cash and made a loss of €3.3m. Given it only has net cash of €671.2k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for InVision that you should be aware of.
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.
InVision Aktiengesellschaft, together with its subsidiaries, develops and markets products and services in the field of workforce management and education in Europe and the United States.
Mediocre balance sheet and slightly overvalued.