Is iGrandiViaggi (BIT:IGV) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that iGrandiViaggi S.p.A. (BIT:IGV) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

View our latest analysis for iGrandiViaggi

What Is iGrandiViaggi's Net Debt?

As you can see below, iGrandiViaggi had €7.62m of debt, at January 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has €22.9m in cash to offset that, meaning it has €15.3m net cash.

How Strong Is iGrandiViaggi's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that iGrandiViaggi had liabilities of €17.4m due within 12 months and liabilities of €16.8m due beyond that. Offsetting these obligations, it had cash of €22.9m as well as receivables valued at €3.38m due within 12 months. So its liabilities total €7.90m more than the combination of its cash and short-term receivables.

Since publicly traded iGrandiViaggi shares are worth a total of €57.4m, it seems unlikely that this level of liabilities would be a major 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 ultimately the future profitability of the business will decide if iGrandiViaggi can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year iGrandiViaggi had a loss before interest and tax, and actually shrunk its revenue by 66%, to €21m. To be frank that doesn't bode well.

So How Risky Is iGrandiViaggi?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months iGrandiViaggi lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €3.4m and booked a €6.8m accounting loss. Given it only has net cash of €15.3m, the company may need to raise more capital if it doesn't reach break-even 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 2 warning signs for iGrandiViaggi you should be aware of, and 1 of them doesn't sit too well with us.

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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