Is Téléverbier (EPA:TVRB) Using Too Much Debt?

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 Téléverbier SA (EPA:TVRB) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Téléverbier

What Is Téléverbier's Debt?

As you can see below, at the end of October 2022, Téléverbier had CHF6.54m of debt, up from CHF3.42m a year ago. Click the image for more detail. But it also has CHF11.8m in cash to offset that, meaning it has CHF5.22m net cash.

How Healthy Is Téléverbier's Balance Sheet?

The latest balance sheet data shows that Téléverbier had liabilities of CHF25.7m due within a year, and liabilities of CHF39.4m falling due after that. On the other hand, it had cash of CHF11.8m and CHF14.0m worth of receivables due within a year. So it has liabilities totalling CHF39.4m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of CHF63.3m, so it does suggest shareholders should keep an eye on Téléverbier's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 was also good to see that despite losing money on the EBIT line last year, Téléverbier turned things around in the last 12 months, delivering and EBIT of CHF17m. When analysing debt levels, the balance sheet is the obvious place to start. But it is Téléverbier's earnings that will influence how the balance sheet holds up in the future. 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Téléverbier 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. In the last year, Téléverbier basically broke even on a free cash flow basis. Some might say that's a concern, when it comes considering how easily it would be for it to 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 CHF5.22m. So while Téléverbier does not have a great balance sheet, it's certainly not too bad. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Téléverbier has 2 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.