Is Vinny Overseas (NSE:VINNY) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 Vinny Overseas Limited (NSE:VINNY) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Vinny Overseas

How Much Debt Does Vinny Overseas Carry?

The image below, which you can click on for greater detail, shows that Vinny Overseas had debt of ₹193.6m at the end of September 2020, a reduction from ₹238.4m over a year. Net debt is about the same, since the it doesn't have much cash.

How Strong Is Vinny Overseas' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Vinny Overseas had liabilities of ₹221.3m due within 12 months and liabilities of ₹187.7m due beyond that. Offsetting these obligations, it had cash of ₹668.0k as well as receivables valued at ₹243.7m due within 12 months. So it has liabilities totalling ₹164.6m more than its cash and near-term receivables, combined.

Vinny Overseas has a market capitalization of ₹388.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Vinny Overseas's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Vinny Overseas made a loss at the EBIT level, and saw its revenue drop to ₹1.1b, which is a fall of 47%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Vinny Overseas's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost ₹7.0m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of ₹16m. So in short it's a really risky stock. 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. Be aware that Vinny Overseas is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

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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