These 4 Measures Indicate That Voyageurs du Monde (EPA:ALVDM) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Voyageurs du Monde SA (EPA:ALVDM) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Voyageurs du Monde

How Much Debt Does Voyageurs du Monde Carry?

As you can see below, Voyageurs du Monde had €89.6m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have €388.8m in cash offsetting this, leading to net cash of €299.2m.

A Look At Voyageurs du Monde's Liabilities

According to the last reported balance sheet, Voyageurs du Monde had liabilities of €489.1m due within 12 months, and liabilities of €90.6m due beyond 12 months. On the other hand, it had cash of €388.8m and €208.3m worth of receivables due within a year. So it can boast €17.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Voyageurs du Monde could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Voyageurs du Monde boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that Voyageurs du Monde has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Voyageurs du Monde'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Voyageurs du Monde has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Voyageurs du Monde actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Voyageurs du Monde has €299.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 124% of that EBIT to free cash flow, bringing in €43m. So we don't think Voyageurs du Monde's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Voyageurs du Monde that you should be aware of before investing here.

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.