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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, VNE S.p.A. (BIT:VNE) does carry debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for VNE
How Much Debt Does VNE Carry?
You can click the graphic below for the historical numbers, but it shows that VNE had €6.59m of debt in June 2024, down from €9.74m, one year before. On the flip side, it has €3.57m in cash leading to net debt of about €3.02m.
How Healthy Is VNE's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that VNE had liabilities of €8.90m due within 12 months and liabilities of €4.97m due beyond that. On the other hand, it had cash of €3.57m and €11.7m worth of receivables due within a year. So it actually has €1.37m more liquid assets than total liabilities.
This excess liquidity suggests that VNE is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if VNE 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.
Over 12 months, VNE made a loss at the EBIT level, and saw its revenue drop to €14m, which is a fall of 2.1%. We would much prefer see growth.
Caveat Emptor
Over the last twelve months VNE produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €138k at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. 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. For example VNE has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About BIT:VNE
VNE
VNE S.P.A. produces hardware and software for the management of banknotes, coins, and payments and transactions through cash and cashless systems.
High growth potential with excellent balance sheet.
