Health Check: How Prudently Does Vogo (EPA:ALVGO) Use Debt?

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. Importantly, Vogo S.A. (EPA:ALVGO) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Vogo

How Much Debt Does Vogo Carry?

As you can see below, at the end of December 2020, Vogo had €7.22m of debt, up from €4.98m a year ago. Click the image for more detail. However, its balance sheet shows it holds €9.74m in cash, so it actually has €2.52m net cash.

How Strong Is Vogo's Balance Sheet?

We can see from the most recent balance sheet that Vogo had liabilities of €4.63m falling due within a year, and liabilities of €6.81m due beyond that. Offsetting this, it had €9.74m in cash and €2.71m in receivables that were due within 12 months. So it can boast €1.01m more liquid assets than total liabilities.

This short term liquidity is a sign that Vogo could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Vogo boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Vogo 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.

Over 12 months, Vogo reported revenue of €5.6m, which is a gain of 211%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Vogo?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Vogo had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €3.4m of cash and made a loss of €3.3m. But the saving grace is the €2.52m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Vogo has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Vogo 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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