Is Global Vectra Helicorp (NSE:GLOBALVECT) Using Debt In A Risky Way?

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.' 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. We can see that Global Vectra Helicorp Limited (NSE:GLOBALVECT) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Global Vectra Helicorp

How Much Debt Does Global Vectra Helicorp Carry?

As you can see below, Global Vectra Helicorp had ₹522.8m of debt at March 2021, down from ₹724.4m a year prior. However, it does have ₹405.4m in cash offsetting this, leading to net debt of about ₹117.4m.

A Look At Global Vectra Helicorp's Liabilities

Zooming in on the latest balance sheet data, we can see that Global Vectra Helicorp had liabilities of ₹3.96b due within 12 months and liabilities of ₹2.61b due beyond that. On the other hand, it had cash of ₹405.4m and ₹977.6m worth of receivables due within a year. So it has liabilities totalling ₹5.18b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the ₹665.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Global Vectra Helicorp would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Over 12 months, Global Vectra Helicorp made a loss at the EBIT level, and saw its revenue drop to ₹3.0b, which is a fall of 35%. That makes us nervous, to say the least.

Caveat Emptor

While Global Vectra Helicorp's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₹582m. 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 reality is that it is low on liquid assets relative to liabilities, and it lost ₹293m in the last year. So we think buying this stock is risky. 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. Be aware that Global Vectra Helicorp is showing 3 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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