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

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.' 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 note that Invibes Advertising N.V. (EPA:ALINV) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 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.

View our latest analysis for Invibes Advertising

What Is Invibes Advertising's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Invibes Advertising had €5.32m of debt in June 2024, down from €6.74m, one year before. However, it does have €14.8m in cash offsetting this, leading to net cash of €9.43m.

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 €2.41m due beyond that. Offsetting these obligations, it had cash of €14.8m as well as receivables valued at €9.70m due within 12 months. So it actually has €10.6m more liquid assets than total liabilities.

This surplus liquidity suggests that Invibes Advertising's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Invibes Advertising boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Invibes Advertising's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Invibes Advertising reported revenue of €28m, which is a gain of 4.6%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Invibes Advertising?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Invibes Advertising had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €69k and booked a €1.5m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €9.43m. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Invibes Advertising that you should be aware of before investing here.

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. 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.