Would NVP (BIT:NVP) Be Better Off With Less Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, NVP S.p.A. (BIT:NVP) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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. 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 NVP

How Much Debt Does NVP Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 NVP had €8.17m of debt, an increase on €5.76m, over one year. However, it also had €1.36m in cash, and so its net debt is €6.81m.

A Look At NVP's Liabilities

The latest balance sheet data shows that NVP had liabilities of €11.0m due within a year, and liabilities of €6.59m falling due after that. Offsetting this, it had €1.36m in cash and €6.43m in receivables that were due within 12 months. So it has liabilities totalling €9.77m more than its cash and near-term receivables, combined.

NVP has a market capitalization of €21.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is NVP'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, NVP made a loss at the EBIT level, and saw its revenue drop to €7.3m, which is a fall of 6.2%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months NVP produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €1.2m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €467k of cash over the last year. So suffice it to say we do consider the stock to be risky. 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 NVP you should be aware of, and 1 of them is significant.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. 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.
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