Is Global Vectra Helicorp (NSE:GLOBALVECT) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Global Vectra Helicorp Limited (NSE:GLOBALVECT) does use debt in its business. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Global Vectra Helicorp

What Is Global Vectra Helicorp's Debt?

You can click the graphic below for the historical numbers, but it shows that Global Vectra Helicorp had ₹487.5m of debt in September 2021, down from ₹584.2m, one year before. However, because it has a cash reserve of ₹222.5m, its net debt is less, at about ₹265.0m.

How Healthy Is Global Vectra Helicorp's Balance Sheet?

We can see from the most recent balance sheet that Global Vectra Helicorp had liabilities of ₹4.20b falling due within a year, and liabilities of ₹2.53b due beyond that. On the other hand, it had cash of ₹222.5m and ₹857.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹5.65b.

This deficit casts a shadow over the ₹887.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Global Vectra Helicorp would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Global Vectra Helicorp's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Global Vectra Helicorp had a loss before interest and tax, and actually shrunk its revenue by 9.5%, to ₹3.1b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Global Vectra Helicorp produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₹531m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the fact is that it incinerated ₹57m of cash in the last twelve months, and has precious few liquid assets in comparison to its liabilities. So is this a high risk stock? We think so, and we'd avoid it. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Global Vectra Helicorp (2 are concerning) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.