Here's Why Viscom (ETR:V6C) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Viscom AG (ETR:V6C) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Viscom

What Is Viscom's Net Debt?

As you can see below, at the end of March 2021, Viscom had €6.47m of debt, up from €5.16m a year ago. Click the image for more detail. However, it does have €6.29m in cash offsetting this, leading to net debt of about €186.0k.

How Strong Is Viscom's Balance Sheet?

According to the last reported balance sheet, Viscom had liabilities of €18.2m due within 12 months, and liabilities of €11.6m due beyond 12 months. Offsetting these obligations, it had cash of €6.29m as well as receivables valued at €22.3m due within 12 months. So its liabilities total €1.26m more than the combination of its cash and short-term receivables.

Having regard to Viscom's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €124.4m company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Viscom has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Viscom'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 Viscom had a loss before interest and tax, and actually shrunk its revenue by 27%, to €62m. That makes us nervous, to say the least.

Caveat Emptor

While Viscom'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 €3.8m. 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. We would feel better if it turned its trailing twelve month loss of €2.1m into a profit. So to be blunt we do think it is 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 Viscom is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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