Is Invibes Advertising (EPA:ALINV) Weighed On By Its Debt Load?

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.' 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 Invibes Advertising N.V. (EPA:ALINV) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

Check out our latest analysis for Invibes Advertising

What Is Invibes Advertising's Net Debt?

As you can see below, at the end of June 2023, Invibes Advertising had €6.74m of debt, up from €5.20m a year ago. Click the image for more detail. However, its balance sheet shows it holds €17.3m in cash, so it actually has €10.6m net cash.

How Healthy Is Invibes Advertising's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Invibes Advertising had liabilities of €10.6m due within 12 months and liabilities of €4.31m due beyond that. Offsetting this, it had €17.3m in cash and €10.3m in receivables that were due within 12 months. So it actually has €12.8m 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). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Invibes Advertising boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year Invibes Advertising had a loss before interest and tax, and actually shrunk its revenue by 2.2%, to €27m. We would much prefer see growth.

So How Risky Is Invibes Advertising?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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 €4.5m and booked a €6.6m accounting loss. Given it only has net cash of €10.6m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. 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.

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.