Is I Grandi Viaggi (BIT:IGV) Using Debt Sensibly?

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.' 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. As with many other companies I Grandi Viaggi S.p.A. (BIT:IGV) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for I Grandi Viaggi

What Is I Grandi Viaggi's Debt?

You can click the graphic below for the historical numbers, but it shows that I Grandi Viaggi had €6.65m of debt in April 2022, down from €8.54m, one year before. But on the other hand it also has €8.30m in cash, leading to a €1.64m net cash position.

How Healthy Is I Grandi Viaggi's Balance Sheet?

The latest balance sheet data shows that I Grandi Viaggi had liabilities of €21.3m due within a year, and liabilities of €13.4m falling due after that. On the other hand, it had cash of €8.30m and €2.80m worth of receivables due within a year. So it has liabilities totalling €23.5m more than its cash and near-term receivables, combined.

This deficit isn't so bad because I Grandi Viaggi is worth €41.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, I Grandi Viaggi boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if I Grandi Viaggi 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.

In the last year I Grandi Viaggi wasn't profitable at an EBIT level, but managed to grow its revenue by 105%, to €35m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is I Grandi Viaggi?

Although I Grandi Viaggi had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €2.0m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for I Grandi Viaggi shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat 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. We've identified 3 warning signs with I Grandi Viaggi (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.