Is Téléverbier (EPA:TVRB) A Risky Investment?

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. As with many other companies Téléverbier SA (EPA:TVRB) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Téléverbier

How Much Debt Does Téléverbier Carry?

As you can see below, Téléverbier had CHF10.9m of debt at April 2024, down from CHF13.9m a year prior. However, it does have CHF29.8m in cash offsetting this, leading to net cash of CHF18.9m.

How Strong Is Téléverbier's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Téléverbier had liabilities of CHF22.2m due within 12 months and liabilities of CHF46.9m due beyond that. On the other hand, it had cash of CHF29.8m and CHF3.21m worth of receivables due within a year. So it has liabilities totalling CHF36.0m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Téléverbier is worth CHF77.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Téléverbier also has more cash than debt, so we're pretty confident it can manage its debt safely.

It is just as well that Téléverbier's load is not too heavy, because its EBIT was down 71% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Téléverbier will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Téléverbier 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. In the last three years, Téléverbier's free cash flow amounted to 22% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although Téléverbier's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CHF18.9m. So although we see some areas for improvement, we're not too worried about Téléverbier's balance sheet. 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. Be aware that Téléverbier is showing 2 warning signs 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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com