Is Invibes Advertising (EPA:ALINV) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Invibes Advertising N.V. (EPA:ALINV) does use debt in its business. But should shareholders be worried about its use of debt?

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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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Invibes Advertising Carry?

The image below, which you can click on for greater detail, shows that Invibes Advertising had debt of €3.89m at the end of December 2024, a reduction from €6.15m over a year. But it also has €11.6m in cash to offset that, meaning it has €7.73m net cash.

A Look At Invibes Advertising's Liabilities

Zooming in on the latest balance sheet data, we can see that Invibes Advertising had liabilities of €11.5m due within 12 months and liabilities of €1.75m due beyond that. Offsetting these obligations, it had cash of €11.6m as well as receivables valued at €9.60m due within 12 months. So it actually has €7.98m more liquid assets than total liabilities.

This surplus strongly suggests that Invibes Advertising has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Invibes Advertising has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Invibes Advertising 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.

View our latest analysis for Invibes Advertising

In the last year Invibes Advertising had a loss before interest and tax, and actually shrunk its revenue by 7.6%, to €27m. That's not what we would hope to see.

So How Risky Is Invibes Advertising?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Invibes Advertising had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €2.5m and booked a €6.6m accounting loss. But the saving grace is the €7.73m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Invibes Advertising (of which 2 are a bit unpleasant!) you should know about.

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.