Vértice Trescientos Sesenta Grados (BME:VER) Has A Pretty Healthy Balance Sheet

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.' 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. Importantly, Vértice Trescientos Sesenta Grados, S.A. (BME:VER) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Vértice Trescientos Sesenta Grados

What Is Vértice Trescientos Sesenta Grados's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Vértice Trescientos Sesenta Grados had €8.27m of debt, an increase on €2.33m, over one year. However, it does have €13.2m in cash offsetting this, leading to net cash of €4.92m.

A Look At Vértice Trescientos Sesenta Grados' Liabilities

Zooming in on the latest balance sheet data, we can see that Vértice Trescientos Sesenta Grados had liabilities of €17.5m due within 12 months and liabilities of €9.20m due beyond that. Offsetting this, it had €13.2m in cash and €6.69m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €6.84m.

Given Vértice Trescientos Sesenta Grados has a market capitalization of €334.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Vértice Trescientos Sesenta Grados boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Vértice Trescientos Sesenta Grados grew its EBIT by 315% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Vértice Trescientos Sesenta Grados 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Vértice Trescientos Sesenta Grados may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Vértice Trescientos Sesenta Grados saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Vértice Trescientos Sesenta Grados has €4.92m in net cash. And it impressed us with its EBIT growth of 315% over the last year. So we are not troubled with Vértice Trescientos Sesenta Grados's debt use. 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 3 warning signs for Vértice Trescientos Sesenta Grados (2 don't sit too well with us) 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. 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.
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