Is Invibes Advertising (EPA:ALINV) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Invibes Advertising N.V. (EPA:ALINV) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Invibes Advertising

How Much Debt Does Invibes Advertising Carry?

The image below, which you can click on for greater detail, shows that at December 2022 Invibes Advertising had debt of €6.77m, up from €6.20m in one year. But on the other hand it also has €20.4m in cash, leading to a €13.6m net cash position.

How Healthy Is Invibes Advertising's Balance Sheet?

According to the last reported balance sheet, Invibes Advertising had liabilities of €13.2m due within 12 months, and liabilities of €3.59m due beyond 12 months. On the other hand, it had cash of €20.4m and €9.79m worth of receivables due within a year. So it actually has €13.4m 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). On this view, lenders should feel as safe as the beloved of a black-belt karate master. 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 ultimately the future profitability of the business will decide if Invibes Advertising can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Invibes Advertising wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to €28m. With any luck the company will be able to grow its way to profitability.

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. Indeed, in that time it burnt through €5.9m of cash and made a loss of €7.9m. With only €13.6m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Invibes Advertising may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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 2 warning signs for Invibes Advertising 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.