Health Check: How Prudently Does iGrandiViaggi (BIT:IGV) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that iGrandiViaggi S.p.A. (BIT:IGV) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for iGrandiViaggi

What Is iGrandiViaggi's Net Debt?

The image below, which you can click on for greater detail, shows that at October 2020 iGrandiViaggi had debt of €10.1m, up from €6.90m in one year. But on the other hand it also has €26.2m in cash, leading to a €16.1m net cash position.

How Healthy Is iGrandiViaggi's Balance Sheet?

We can see from the most recent balance sheet that iGrandiViaggi had liabilities of €18.0m falling due within a year, and liabilities of €18.5m due beyond that. On the other hand, it had cash of €26.2m and €3.64m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €6.67m.

Given iGrandiViaggi has a market capitalization of €46.2m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, iGrandiViaggi also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine iGrandiViaggi's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year iGrandiViaggi had a loss before interest and tax, and actually shrunk its revenue by 52%, to €31m. To be frank that doesn't bode well.

So How Risky Is iGrandiViaggi?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year iGrandiViaggi had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €4.3m and booked a €5.8m accounting loss. With only €16.1m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for iGrandiViaggi you should be aware of, and 1 of them is significant.

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.

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