Is Global Vectra Helicorp (NSE:GLOBALVECT) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Global Vectra Helicorp Limited (NSE:GLOBALVECT) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View 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 ₹554.0m of debt in March 2022, down from ₹595.9m, one year before. On the flip side, it has ₹320.7m in cash leading to net debt of about ₹233.3m.

A Look At Global Vectra Helicorp's Liabilities

We can see from the most recent balance sheet that Global Vectra Helicorp had liabilities of ₹3.92b falling due within a year, and liabilities of ₹2.36b due beyond that. On the other hand, it had cash of ₹320.7m and ₹760.5m worth of receivables due within a year. So it has liabilities totalling ₹5.21b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the ₹567.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Global Vectra Helicorp would likely require a major re-capitalisation if it had to pay its creditors today. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Global Vectra Helicorp wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to ₹3.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Global Vectra Helicorp had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable ₹328m at the EBIT level. 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. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost ₹54m 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Global Vectra Helicorp has 4 warning signs (and 2 which are concerning) we think 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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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.